Impact of intellectual capital efficiency on performance of Ethiopian Private Banks.

Abstract

This paper adopted Pulic (1998) model, scholars acknowledged as Value Added Intellectual Coefficient™ (VAIC™) to the measurement of Intellectual capital efficiency and performance of Ethiopian Private Banks” as measured on return on asset (ROA). This paper also used Purposively sampled from 16 Private commercial bank in Ethiopias, which enable to answer research questions by focusing on particular characteristics of a population that are of interest, 80 observations for 5 years data from 2015 to 2019 was taken. VAIC and its three components, human capital efficiency (HCE), capital employed efficiency (CEE) and structural capital efficiency (SCE) along with the control variable phisical capital intensity (PCI), data are constructed from the annual financial statements. The assumptions needed to be fulfilled for OLS were tested; the residual was found homoscedastic, free of multicollinearity, autocorrelation and normal distributed. Regression models are used to test the hypotheses of the study where the results show that there was positive significant influence of IC as measured by VAIC on financial performance. Among the component of VAIC, the results showed that human capital efficiency (HCE) and structural capital efficiency (SCE) positively influence the financial performance of Ethiopian private commercial banks while capital employed efficiency (CEE) has existence of negative significant relationship and statistically insignificant relationship withthe financial performance as measured by ROA. The study also provided evidence for existence of negative significant relationship between phisical capital intensity and ROA.