Effect of Intellectual Capital on the Performance of Nigeria Banks.
The study examines the effect of intellectual capital on the performance of Nigeria banks. Using an ex-post- facto research design, secondary source of data, and regression method of analysis; the study used a sample size of 5banks randomly selected from a population of 44 quoted banks listed in Nigeria stock exchange.
The study findings showed that intellectual capital is a good indicator of banking performance in Nigeria. The findings showed that intellectual asset of the banks contributed to the bank’s book value, market price per share, earnings per share and per share free cash flow of the financial institutions(Nigeria banks) and ins invariably contributed to the level of the bank’s performance over the period being studied.
The findings also indicated that the variable used in the model specification in measuring the performance of intellectual capital on the performance of banks in Nigeria is a significant indicator of a firm’s performance and at P<0.05 level, the finding was observed to be significant.
Based on this, it is recommended in that study that Banks in Nigeria should invest on intellectual capital asset of their firm to ensure better performance; intellectual capital being part of the intangible asset of any firm should not be overlooked by the management of the organization and provision should be made in reporting the contribution of intellectual capitals in the financial statement of banking organizations in Nigeria.
1.1 Background to the Study
With the gradual shift of the global business world into the knowledge economy, it is becoming increasingly important and obvious to business organizations that to survive in business in this complex and dynamic world, adequate attention must be paid to the intellectual capital base of the firm.
Gone are the days when firms focus only on their physical capital with little or no attention to their intellectual capitals and still post huge profits.
Competition in business today has become so intense that managers utilize every resource at their disposal to edge others out of business.
Intellectual capital has also become an important business resource that organizations can leverage to gain competitive advantage. Bornemann et al. (1999) discover that enterprises, which have managed their intellectual capital better, had achieved a stronger competitive advantage than the other enterprises.
Iswati and Anshori (2007) opine that human being has become the central attention in the twentieth century hence intellectual capital research now is not only paramount but also timely.
Furthermore, according to OECD (2001) human capital, which is an integral part of intellectual capital, has been recognized as one of the key determinants of growth in any business enterprise.
According to Bornemann et al. (1999) companies that strengthen their own intellectual capital management as compared to others performs better. Intellectual capital is one of the main factors related to the performance and long-term profitability of a knowledge-based economy (Huu and Fang, 2008).
Following from the above, the banking sector in Nigeria has recognized this fact and has taken some drastic action with respect to enhancing its intellectual capital base.
For example, banks in Nigeria nowadays engage mostly university graduates, who possess a minimum of second class honors degree (upper division) in their employment policies, thereby giving credence to the fact that intellectual capital significantly affects their performance.
This action has really paid off as the Nigerian banking sector has witnessed a huge transformation in the last few years. Customers of banks now receive quick and improved services from their banks.
Also, the use of automated teller machines (ATMs) and internet banking facilities have decongested the banking halls of most banks in Nigeria thereby saving a lot of man-hours.
Furthermore, customers can also obtain bank services from the comfort of their homes. In addition to the above, the banking sector has for so many years dominated trading at the Nigerian stock exchange.
Also, before the year 2000, the three strongest and most popular banks in Nigeria were: the First Bank of Nigeria (FBN), Union Bank of Nigeria (UBN) and United Bank for Africa (UBA).
The volume of their transactions as well as their assets and customer bases were not only very high but also very strong.
With the emergence and introduction of modern technologies in banking, which depended heavily on their intellectual capital base, this trio was generally classified as old generation banks while the banks that immediately embraced the modern technologies, such as Zenith Bank Plc, Eco bank Plc, Diamond Bank Plc, etc., were classified as the new generation banks.
Even then, the new generation banks could only make a minor impact in the economy and at the Nigeria Stock Exchange as these older banks dominated trading and other activities at the exchange.
Most people then preferred to the bank and carry out their transactions with these old generation banks because of these attributes. Today, with the coming of these new technologies, the trend has been altered.
While some of the old generation banks still record higher book values of their physical assets, most of the new generation banks post higher and better financial performance figures and better services than the old generation banks owing to the intellectually based innovations introduced by these new generation banks.
Consequently, people now prefer to bank with the new generation banks and as a result, the customer bases of the older banks have dropped significantly.
Furthermore, even at the Nigeria Stock Exchange (NSE), the rate of stock turnover of these new generation banks as well as their market prices has consistently been higher than those of the old generation banks.
It is also recognized that intellectual capital (IC) is embraced in every facet of economic, sociological, political, and managerial development ‘in a manner previously unknown and largely unforeseen’ (Petty and Guthrie, 2000).
This has turn intellectual capital into a prominent business research topic (Bontis, 1999; Serenko and Bontis, 2004) which organizations must pay attention towards the attainment of their objectives.
Intellectual Capital has been defined in various ways in the literature (Bontis, 1996; Brooking, 1996; Roos and Ross, 1997).
One of the most concise definitions of intellectual capital is given by Stewart (1997) as “packaged useful knowledge.” He explains that this includes an organization’s processes, technologies, patents, employees’ skills, and information about customers, suppliers, and stakeholders.
Various other definitions use concepts such as ability, skill, expertise, and other forms of knowledge that are useful in organizations.
The task of measuring the performance of intellectual capital in the organization becomes a major step to investigating the reasons for low or high performance of workers.
Hence the measurement of corporate performance needs to include the firm’s total resources (physical and intellectual). Business performance is an important concept that relates to the way and manner in which financial resources available to an organization are judiciously used to achieve the overall corporate objective of an organization.
It is therefore important that an organization’s performance is measured on a regular basis in order to ensure sustainability.
Intellectual capital research has been conducted in a variety of international settings including the United Kingdom (Roos et al., 1997), Australia (Sveiby, 1997), Canada (Bontis, 1996; 1998; 1999).
Austria (Bornemann, 1999), the U.S. (Stewart, 1997; Bassi and Van Buren, 1999), Malaysia (Bontis et al., 2000), Hong Kong ( Chu et al., 2011), South Africa (Firer and Stainbank, 2003), and Sub-Sahara Africa (Kwasi and Kwesi, 2011).
However, there appears to be a dearth of literature on Intellectual Capital research in Nigeria.
However, despite increasing recognition of the importance of intellectual capital in the knowledge-based economy, little research attention has been devoted to understanding the link between intellectual capital and organizational performance in Nigeria.
Much of the studies on intellectual capital has focused on Western countries (particularly North America and Europe). To date, few scholars have focused on the effect of intellectual capital on organizational performance in the Nigerian banking sector.
This is surprising given that many scholars (e.g. Ruta, 2009, Yang & Lin, 2009) argue that intellectual capital development is the hidden value that is not reflected in organizational financial statements but has the potential to contribute to organizational profitability and competitive advantage.
The Nigerian banking sector offers a rich avenue for research on intellectual capital given that the majority of individuals that work in banks are knowledge workers. It is on this note that this research sets to examine the effect of intellectual capital on the performance of Nigerian Banks.
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