RELATIONSHIP BETWEEN INTELLECTUAL CAPITAL AND FINANCIAL PERFORMANCE IN THE NIGERIA BANKING SECTOR

RELATIONSHIP BETWEEN INTELLECTUAL CAPITAL AND FINANCIAL PERFORMANCE IN THE NIGERIA BANKING SECTOR

 

ABSTRACT

In recent times a new high technology, information, and innovation based environment has gradually taken the centre stage in the global economy. Under the new dispensation, knowledge, ability, skills, experience and attitude of workers, assume greater significance even as organizations use intellectual capital as a critical resource to enhance their performances.  Consequent upon this, service firms as well as manufacturing organisations use intellectual capital with their physical assets to sharpen their competitive edge while organizations which have managed their intellectual capital better, are observed to have achieved stronger competitive advantage than the general enterprises. Following from above, it is expected that there should be a positive relationship between intellectual capital and financial performance. Empirical records of studies on this relationship in some developed nations showed divergent views. Unfortunately, no empirical records on the relationship of intellectual capital and financial performance in the Nigeria Banking sector exist. This study had the broad objective of using the Value Added Intellectual Coefficient (VAIC) model to investigate if there is a positive and significant relationship between the Intellectual Capital indices (such as Human Capital Efficiency, Structural Capital Efficiency and the Capital Employed Efficiency) and financial performance variables (which included Return on Assets, Return on Equity, Employee productivity, Growth in Revenue and Market to book value ratio) of selected banks in Nigeria. The study adopted the ex-post facto research design. It was systematically conducted using longitudinal time series data generated from the Nigeria Stock Exchange and from annual reports and accounts of the selected banks in Nigeria spanning from year 2000 to 2011. The hypotheses of the study were: (i) The indices of the value added intellectual coerfficient of a bank do not positively and significantly affect the bank’s Return on Assets (ROA). (ii) The indices of the value added intellectual coefficient of a bank, do not positively and significantly affect the bank’s Return on Equity (ROE). (iii) The indices of the value added intellectual coefficient of a bank, do not positively and significantly affect the Employee Productivity (log EP) of the bank. (iv) The indices of the value added intellectual coefficient of a bank, do not positively and significantly affect the bank’s Growth in Revenue (GR). (v) The indices of the value added intellectual coefficient of a bank, do not positively and significantly affect the bank’s Market to Book value ratio (MB). The dependent variables were: (i) Return on Assets, (ii) Return on Equity, (iii) Employee Productivity, (iv) Growth in Revenue, (v) Market to book value ratio; while the independent variables were the components of Value Added Intellectual Capital {Human Capital Efficiency (HCE), Structural Capital Efficiency (SCE) and the Capital Employed Efficiency (CEE)}. The multiple regression analysis method was adopted for the test of all the hypotheses. The SPSS statistical software (version 17.0) was used for the data analysis. There was a positive significant relationship between components of VAIC and the Return on Assets of the banks in Nigeria (VIAC coefficient = 9.02, R2c = 0.97, R2t = 0.49, P < 0.05).  There was also a positive significant relationship between components of VAIC and the Return on Equity of the banks in Nigeria (VIAC coefficient = 8.15, R2c = 0.69, R2t = 0.49, P < 0.05). The study further showed that there was a positive significant relationship between components of VAIC and employee productivity of the banks in Nigeria (VIAC coefficient = 1.34, R2c = 0.98, R2t = 0.49, P < 0.05). The results also showed that there was no positive significant relationship between components of VAIC and the growth in revenue of the banks in Nigeria (VIAC coefficient = -2.37, R2c = 0.45, R2t = 0.49, P > 0.05). There was a positive relationship between the components of VAIC and market to book value ratio of the banks in Nigeria (VIAC coefficient = 3.29, R2c = 0.68, R2t = 0.49, P < 0.05). From the results stated above, it is thus established that indeed there is positive significant relationship between intellectual capital and financial performance of banks in Nigeria.