Analyzing the Impact of Intellectual Capital on the Financial Performance: A Comparative Study of Indian Public and Private Sector Banks

Monika Barak () and Rakesh Kumar Sharma ()
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Monika Barak: Thapar Institute of Engineering and Technology
Rakesh Kumar Sharma: Thapar Institute of Engineering and Technology

Journal of the Knowledge Economy, 2024, vol. 15, issue 4, No 176, 20320-20348

Abstract: Abstract This paper explores the effect of intellectual capital (I.C) on the financial performance (F.P) of 12 public and 17 private sector banks in India. To get a comprehensive viewpoint, the study will try to answer the research question, i.e., Does the intellectual capital affect the financial performance of the Indian banks with respect to their multidimensionality? We used intellectual capital and financial performance as multidimensional constructs (human capital (H.C), capital employed (C.E), structural capital (S.C), and relational capital (R.C) for intellectual capital and return on assets (ROA), return on equity (ROE), return on capital employed (ROCE), and return on sales (ROS) for financial performance). Data were collected over 12 years, specifically from 2010 to 2022 from each bank. This study employed the modified value-added intellectual coefficient (MVAIC) measure as an alternative to the disputed value-added intellectual capital (VAIC) model to address the shortcomings of the previous research. The present study employed advanced longitudinal cointegration techniques to authenticate and validate the results. The fully modified ordinary least squares (FMOLS) method is employed to assess the effectiveness of the intellectual capital. The results suggest a positive relationship between human capital and all financial metrics, except for ROE, in the context of public sector banks. Further efficiency of capital employed and structural capital positively affects public sector bank financial performance indicators like ROA, ROE, ROCE, and ROS. Private sector banks have a negative correlation between relational capital and ROS whereas it demonstrates a positive association with ROCE. Similarly, there is a negative correlation between relational capital and both ROA and ROE in the case of public sector banks. For instance, the MVAIC model improves all financial performance measures except ROA, especially in private sector banking. The findings will assist executives, government officials, and policymakers in quantifying the efficiency and discerning the essential intellectual elements that enhance their effectiveness. Additionally, these findings will aid in devising strategies to foster and enhance their intellectual capacity.

Keywords: Indian public and private sector banks; Intellectual capital; Resource-based theory; Stakeholder theory; FMOLS (search for similar items in EconPapers)
JEL-codes: C1 G21 J24 L25 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s13132-024-01901-4

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