The role of intellectual capital in financial development: evidence from the banking sector of Turkey

Abstract

Purpose

The objective of this study is to explore and compare intellectual capital (IC) and its three components in deposit, investment and participation banks operating in Turkey's banking sector, and to analyze empirically the relationship between intellectual capital and financial performances of the banks.

Design/methodology/approach

The study uses a panel data of 46 banks operating in the Turkish banking system during the period of 2005-2019. To measure intellectual capital, value-added intellectual coefficient (VAIC) is used, consisting of the efficiency of a firm's three types of capital - that is human, structural and employed capitals. To examine the proposed research hypotheses for each bank type separately, multiple regression analysis methods are used.

Findings

The findings of this paper reveal a positive and statistically significant relationship between IC and financial performance of the banks. Specifically, two of the components of IC, namely, employed and human capital efficiencies, are the most influential value drivers for the financial profitability of the banks, whereas structural capital efficiency has less importance in the profitability of the banks. The financial performance of the banks in Turkey is affected mostly by human capital. Therefore, if banks plan to increase their profitability, they need to pay more attention to human capital than structural and employed capitals.

Originality/value

The current study can be considered as one of the most comprehensive studies on analyzing the relationship between intellectual capital and financial performances of businesses in the Turkish banking sector. The previous studies analyzed either the banks individually or all banks as one group. The paper provides a valuable framework for executives, managers and policymakers in managing IC within the Turkish context as the most comprehensive study in the relevant literature.