Intellectual capital and financial performance of Sharia-compliant banks in Saudi Arabia

• Main Author: Mohammad Naushad
• Format: Article
• Language: English
• Published: LLC "CPC "Business Perspectives" 2019-11-01
• Series: Banks and Bank Systems
• Subjects: Intellectual Capital (IC); Return on Assets (ROA); Return on Equity (ROE); Saudi Arabia; Sharia-compliant banks; Value Added Intellectual Coefficient (VAIC)
• Online Access: https://businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/12654/BBS_2019_04_Naushad.pdf

The current study is aimed at analyzing the impact of intellectual capital on the performance of Sharia-compliant banks in Saudi Arabia for the period 2013–2018. The intellectual capital efficiency has been measured by applying a widely-used proxy to intellectual capital, i.e., Value Added Intellectual Coefficient (VAIC). A multiple linear regression method, based on panel data using the pooled Ordinary Least Squares (OLS), was exerted. Regression equations were obtained to determine the impact of VAIC and its components (Human Capital Efficiency (HCE), Structural Capital Efficiency (SCE), and Capital Employed Efficiency (CEE)) on the financial performance of banks, designated as Return on Assets (ROA) and Return on Equity (ROE). The study has found out that VAIC has a statistically significant impact on the financial performance of Sharia-compliant banks in Saudi Arabia. But VAIC components fail to have a significant impact on ROE. However, these components significantly affect ROA. The study concludes that Sharia-compliant banks in the Kingdom of Saudi Arabia should pay particular attention to Intellectual Capital (IC) in general and Human Capital (HC), Structural Capital (SC), and Employed Capital (EC) in particular to increase Return on Assets and financial performance as a whole.