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Relationship Between Intellectual Capital And Financial Performance in the Nigeria Banking Sector

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Relationship Between Intellectual Capital And Financial Performance in the Nigeria Banking Sector.


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 that have managed their intellectual capital better, are observed to have achieved a 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 them;

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 the year 2000 to 2011.


Title Page i

Declaration ii

Dedication iii

Acknowledgements iv

Abstract vii

Table of Contents viii

List of Tables xi

List of Figures xv


1.1 Background of Study 1

1.2 Statement of Research Problem 4

1.3 Objectives of Study 8

1.4 Statement of Research Questions 9

1.5 Statement of Research Hypotheses 10

1.6 Significance of Study 10

1.7 Delimitation/Scope of Study 12

1.8 Operational definition of Terms 13


2.1 Concept of Human Resource Accounting 19

2.2 History of Human Resource Accounting 21

2.3 Intangibles Assets 22

2.4 Intangible Assets for Accounting Purposes 22

2.5 Intangible Assets for Statistical Purposes 24

2.6 Intangible Assets for Managerial Purposes 25

2.7 What is Intellectual Capital? 27

2.7.1 Characteristics of Intellectual Capital 31

2.8 Measurement of Intellectual Capitals 32

2.8.1 Why should Intellectual Capital be measured? 32

2.8.2 The Scandinavian Insurance Company 33

2.9 Influence of Intellectual Capitals on Corporate Performance 34

2.9.1 Intellectual Capital (IC) and Financial Performance 37

2.9.2 Intellectual Capital (IC) and Market Value 38

2.10 Models of Intellectual Capitals (IC) Measurements 38

2.10.1 Economic Value Added (EVA) 39

2.10.2 Market Value Added (MVA) 43

2.10.3 Tobin’s Q Ratio 44

2.10.4 Kaplan and Norton’s Balanced Score Card (BSC) 45

2.10.5 Skandia’s Intellectual Capital (IC) Navigator 47

2.10.6 Intellectual Capital Services’ IC – Index 49

2.10.7 The Technology Broker’s IC Audit 51

2.10.8 Seviby’s Intangible Asset Monitor (IAM) 52

2.10.9 Real Options Theory 54

2.10.10 Citation – Weighted Patents 55

2.10.11 Historical or Actual Cost 57

2.10.12 The Multiplier Method 57

2.10.13 The Replacement Cost Method 58

2.11 Construction Logics of the Human Capitals Measurement Models 58

2.11.1 Cost Accounting Paradigm 60

2.11.2 Surplus Distribution Paradigm 60

2.11.3 Performance Potential Paradigm 60

2.12 Components of the Human Capital Measurement Model 62

2.13 Benefits of Employing Human Capitals Metrics to the organization 64


3.1 Research Design 74

3.2 Nature and Sources of Data 74

3.3 Population and Sample Size of Study 75

3.4 Description of Research Variables 75

3.4.1Description of Dependent Variables 76

3.4.2 Description of Independent Variables 77

3.4.3 Control Variables 79

3.5 Stochastic Disturbances 80

3.6 Techniques for Data Analyses 80

3.7 Model Specification 80

References 82



4.1 Presentation of Data 83

4.2 Analysis and Interpretation of Data 86

4.3 Implications of the Results of Study 119



5.1 Summary of Findings 134

5.2 Conclusion 136

5.3 Recommendations 138

5.4 Contribution to Knowledge 141

5.5 Policy Implications of the Research Findings 141

5.6 Recommended Areas for further Research 142

Bibliography 143

Appendix A 153


The global economy has for the past few decades witnessed a gradual transition from an industry-based environment; with a focus on physical assets such as factories, plants, machines and equipment. To a high technology, information, and innovation-based environment, which focuses on the expertise, talents, creativity, skill, dedication and experience of people in the organisation-the organisation’s intellectual capital.

The fundamental difference between these two environments lies in the nature of their assets and their effect on financial performance indices. In the former, the physical assets like plants, machinery, materials, equipment, etc. are of utmost importance and make up the bulk of the organisation’s assets and value.

While in the latter, knowledge, ability, skills, experience and attitude of workers, assume greater significance. Furthermore, land, labour and capital (financial and physical) were traditionally considered to be the most valuable assets in economics and as a result, conventional physical assets were considered to be the main determinants of the performance of any economic activity (Ahangar 2011).

However, the fast expansion of science, technology and finally the globalization has altered the pattern and structure of the production systems today. The new production systems are mainly driven by technology, knowledge, expertise and relations with stakeholders etc which may collectively be described as Intellectual Capital (Ahangar 2011).


Ahangar R. G. (2011), “The relationship between Intellectual Capitals and Financial Performance: An empirical investigation in an Iranian company” African
Journal of Business Management Vol. 5(1), pp. 88-95, 4 January, 2011. Available online at
Amah, G. A.N (2006), “Assessing the impact of Human Resource Costing and Accounting on Corporate Valuation Decisions”, a Ph.D. Thesis, Abia State University.
American Accounting Association Committee, (1973), Report on Human Resource Accounting” The Accounting Review vol. 48.
Andrikopoulos, A. (2005), “Using Intellectual Capital Statements to Determine Value Drivers and Priorities for Organizational Change: a Portfolio Selection
Approach”. Knowledge Management Research & Practice 3 (3), 166.
Armstrong M. (2006), A handbook of Human Resource Management Practice 10th edition, International Students edition, London, Kojan Page.

CSN Team.

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