How does human capital efficiency impact credit risk?: the case of commercial banks in the GCC

Jamila Abaidi Hasnaoui and Amir Hasnaoui

Journal of Risk Finance, 2022, vol. 23, issue 5, 639-651

Abstract: Purpose - This paper aims to assess human capital efficiency's impact on commercial banks' credit risk in six GCC member countries. Design/methodology/approach - The study employs quarterly balanced panel data of banks between 2014 and 2019. The authors use three different constructs of credit risk, namely the probability of default which is a forward-looking quantification, a book value-based infection ratio and independent opinion of credit ratings, to assess the relationship with human capital efficiency. Different macro and firm-specific control variables are introduced, including a dummy for technological innovation and a GARCH-based measure of oil price volatility. Findings - The findings of this study reveal that human capital efficiency is negatively related to the credit risk profile and banks with higher human capital efficiency tend to have lower credit risk. These results remained robust across the three definitions of credit risk used in this study. Originality/value - This study is unique in exploring the impact of human capital efficiency on credit risk because credit risk is not only a central determinant of bank performance but also can trigger a systemic panic. Therefore, it is vital to assess its relationship with human capital efficiency. The different constructs of credit risk are innovative with reference to human capital. Lastly, using EVA as a measure of value addition in the context of human capital efficiency is a methodological contribution.

Keywords: Human capital efficiency; Credit risk; Probability of default; G20; G21; J24 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jrfpps:jrf-04-2022-0083

DOI: 10.1108/JRF-04-2022-0083

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