The Intellectual Capital Performance of the Ethiopian Banking Sector

Abstract

Most intellectual capital (IC) research focuses on developed nations. However, some studies have been conducted on Sub-Saharan African countries such as Nigeria, Uganda, Kenya and Tanzania. Since the banking context in Ethiopia is different from others, their experience might not be enough to explain the performance of the Ethiopian banking sector. Ethiopia is one of the fastest-growing economies in Sub-Sahara Africa with a protected (non-liberalised) banking sector making the Ethiopian banking sector worthy of examination. Thus, this article aimed to assess the impact of IC on the financial performance of conventional banks. The author analysed over 17 conventional commercial banks for a period of 6 years. The research examines the relationship between IC and financial performance using panel data regression. The sensitivity of the Value-Added Intellectual Coefficient (VAICTM) to macroeconomic and firm-specific variables was also tested. The finding showed a positive correlation between bank performance and VAIC. Furthermore, the human capital and relational capital efficiencies are found critical components of VAIC in the context of this study. According to the findings, banks should invest more in their human capital investment to increase their performance.

Keywords: Intellectual Capital, VAIC, Panel Model, Human Capital Efficiency, Relational Capital Efficiency, Structural Capital Efficiency

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