Does intellectual capital in Islamic banks outperform conventional banks? Evidence from GCC countries

Omar Al Farooque, Rayed Obaid Hammoud AlObaid and Ashfaq Ahmad Khan

Asian Review of Accounting, 2023, vol. 31, issue 5, 805-831

Abstract: Purpose - This study explores, first, the performance effect (accounting- and market-based performance) of intellectual capital (IC), measured using the value-added intellectual coefficient (VAIC) and its modified version (MVAIC), on Islamic and conventional listed banks in Gulf Cooperation Council (GCC) countries and, second, whether Islamic banks outperform conventional banks in utilising IC. Design/methodology/approach - Using resource-based view theory and literature reviews, regression analyses are conducted on data for the period 2012–2019 on 26 Islamic and 42 conventional banks. For hypothesis testing, the generalised method of moments panel data regression analysis is applied after addressing endogeneity issues. Findings - Results, after controlling for corporate governance, indicate that the performance effects of IC (VAIC and MVAIC) on both bank types largely converge and Islamic banks do not outperform conventional banks in IC use. IC has a stronger effect on accounting performance measures for conventional banks than for Islamic banks, but IC has some effect on market performance measures for Islamic banks alone. Corporate governance variables do not play a significant role in the presence of VAIC and MVAIC although there are differences in corporate governance between the two bank types. Originality/value - This study bridges the gap in GCC banking sector literature on the association between IC efficiency and performance measures of Islamic and conventional banks, from a comparative perspective. It enhances understanding, about the IC–financial performance nexus, of policymakers, regulators, bank managers and other stakeholders interested in the influence of different business models, financing/investment methods and governance structure on the performance of both bank types.

Keywords: Intellectual capital (value-added intellectual coefficient; modified value-added intellectual coefficient); Bank financial performance; Gulf Cooperation Council countries; Generalised method of moments (GMM); G21; G34; J24; O15 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:arapps:ara-12-2022-0298

DOI: 10.1108/ARA-12-2022-0298

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