Intellectual Capital and the Financial Performance of Banks in Bahrain


This study examines whether intellectual capital influenced the financial performance of banks in Bahrain during the period 2005 to 2007. Pulic?s Value Added Intellectual Coefficient (VAIC) was used as the efficiency measure of intellectual capital. Two regression models were constructed to test if the overall VAIC, and each of its three components (capital employed efficiency, human capital efficiency and structural capital efficiency) affect banks? performance. The results support the hypothesis that intellectual capital has a positive impact on the financial performance of banks in

Bahrain. In addition, when VAIC is classified into its three major components, we find that financial performance is positively associated with capital employed efficiency (CEE) and human capital efficiency (HCE). However, our findings fail to find any significant association between structural capital efficiency (SCE) and financial performance of the banks. This study provides an understanding of the influence of intellectual capital on banks? performance in an emerging economy, Bahrain, in which its economic vision 2030 emphasises the importance of human capital, knowledge, innovations and other elements of intellectual capital in sustaining its economic growth.

Keywords: Intellectual capital, financial performance, VAIC, Bahrain.


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