Intellectual Capital and the Financial Performance of Banks in Bahrain

Abstract

This study examines whether intellectual capital infl uenced the fi nancial performance of banks in Bahrain during the period 2005 to 2007. Pulic’s Value Added Intellectual Coeffi cient (VAIC) was used as the effi ciency measure of intellectual capital. Two regression models were constructed to test if the overall VAIC, and each of its three components (capital employed effi ciency, human capital effi ciency and structural capital effi ciency) affect banks’ performance. The results support the hypothesis that intellectual capital has a positive impact on the fi nancial performance of banks in Bahrain. In addition, when VAIC is classifi ed into its three major components, we fi nd that fi nancial performance is positively associated with capital employed effi ciency (CEE) and human capital effi ciency (HCE). However, our fi ndings fail to fi nd any signifi cant association between structural capital effi ciency (SCE) and fi nancial performance of the banks. This study provides an understanding of the infl uence 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.

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