Does intellectual capital influence banks' efficiency? Evidence from India using panel data tobit model

Abstract

Purpose

This study investigates the effect of intellectual capital (IC) and its components on the technical efficiency of Indian commercial banks after controlling the influence of bank-specific and macroeconomic variables.

Design/methodology/approach

The study selects a sample of 37 listed Indian commercial banks from 2005 to 2019 and uses the two-step data envelopment analysis (DEA) approach. Banks' technical efficiency scores are first estimated, while the relationship between IC and technical efficiency is examined in the second stage using the panel data Tobit model.

Findings

This study's findings suggest a fluctuating trend in the technical efficiency of Indian banks. Notably, from 2015 onwards, a declining technical efficiency trend is observed for all banks. However, private-sector banks outperform public-sector banks in terms of technical efficiency. This study's regression analysis indicates a positive relationship between IC and banks' technical efficiency scores. Further, by decomposing IC into its components like human capital, structural capital and capital employed, the study's findings show that human capital and structural capital enhance banks' technical efficiency. Notably, capital employed reduces technical efficiency. Moreover, bank size, diversification, capitalization, net interest margin and the country's growth rate significantly drive Indian banks' efficiency. In contrast, their operating cost ratio and the country's inflation negatively influence the same.

Originality/value

This study makes a novel endeavor to examine the IC and bank's technical efficiency nexus in the Indian context, encompassing a period of landmark banking reforms.

Citation

Maji, S.G. and Saha, R. (2024), "Does intellectual capital influence banks' efficiency? Evidence from India using panel data tobit model", Managerial Finance, Vol. 50 No. 4, pp. 697-717. https://doi.org/10.1108/MF-05-2023-0303