Intellectual capital efficiency and bank performance: Evidence from islamic banks

The purpose of this study is to shed light on the extent of intellectual capital efficiency (ICE) and the relationship of its three components (human capital efficiency, structural capital efficiency, and relational capital efficiency) with Islamic banking performance (in terms of return on assets, return on equity, and Tobin's q) in Muslim countries. We develop hypotheses on this relationship drawing on the resource-based theory. The study employs a two-step system generalized method of moments (2SYS-GMM) estimator to analyze the data collected from 129 Islamic banks in 29 Muslim countries over the period from 2008 to 2017. The study provides evidence that the performance of Islamic banks (IBs) is driven primarily by investment in ICE. The results indicate that structural capital efficiency (SCE) and relational capital efficiency (RCE) are the essential drivers of value in achieving high performance at Islamic banks. The results reveal that human capital efficiency (HCE) negatively affects the performance of IBs. Bank size and foreign ownership are also identified as significant drivers of IBs performance. This study helps IBs to maintain their ICE assets because they are the main drivers for sustaining competitive advantage as well as raising bank productivity. Our findings can help stakeholders and policymakers to recognize the significant components of ICE and a reasonable allocation among them for improving bank performance. To the best of our knowledge, this is the first empirical study to evaluate ICE and its relationship with Islamic banking performance in 29 Muslim countries across the Middle East, South Asia, and Southeast Asia.