Exploring the effect of intellectual capital on financial performance: a study of Indian banks

Abstract

Purpose

The purpose of this paper is to inspect the effect of intellectual capital (IC) on the financial performance (FP) of Indian banks.

Design/methodology/approach

The study uses the data of 58 Indian banks, namely, 20 nationalised banks, 17 private Indian banks and 21 private foreign banks, for the period between 2009 and 2018. A modified value-added intellectual coefficient methodology was used for measuring the efficiency of the IC.

Findings

The efficiency of IC significantly enhances the profitability and productivity of the Indian banks. Overall, human capital is the most substantial component of IC in augmenting the profitability and productivity of the Indian banking industry. Structural capital and physical capital are vital only for improving profitability while the contribution of relational capital towards the banks’ FP is nominal. The result also shows that amongst the three categories of Indian banks, private foreign banks are most efficient in leveraging their IC.

Research limitations/implications

The study results are only restricted to Indian banks and the data of only 58 banks are used for drawing the inferences.

Originality/value

The paper fills the void in the existing literature of IC and corporate FP by using the data set of Indian banks divided into the public sector, private Indian and private foreign banks.

Citation

Weqar, F., Khan, A.M. and Haque, S.M.I. (2020), "Exploring the effect of intellectual capital on financial performance: a study of Indian banks", Measuring Business Excellence, Vol. 24 No. 4, pp. 511-529. https://doi.org/10.1108/MBE-12-2019-0118