Intellectual capital and corporate governance: an evaluation of Oman's financial sector companies

Abstract

Purpose The purpose of this study is to empirically investigate the relationship between intellectual capital and corporate governance of Oman's financial sector companies. Intellectual capital has been found to successfully contribute to the economic wealth creation of firms in germane literature. Unfortunately, financial statements do not necessarily capture and reflect the contributions of intellectual capital, thereby leading to an information asymmetry between companies and users of financial statements. The research also investigates the relationship between corporate governance and intellectual capital efficiency across various financial subsectors. Design/methodology/approach Data are collected from annual reports available on Muscat Securities Market for 31 listed financial sector companies for the period 2012 to 2016 and analyzed using a multiple regression model. Intellectual capital is measured using Pulic's efficiency measure of value-added intellectual coefficient (VAIC). Corporate governance individual components such as board characteristics, audit committee characteristics and ownership structure are presented as independent variables. Findings The findings suggest that board size and frequency of audit committee meetings have a significant association with the intellectual capital efficiency of Oman's financial sector. VAIC and human capital efficiency of banks are also significantly influenced by most of the corporate governance mechanisms; however, other subsectors do not report such findings. Corporate governance of banks in comparison to other subsectors effectively engages in utilizing the potential of intellectual capital efficiency. Agency theory and resource dependency theory find limited support as a result of this study. The GMM results are not robust to the alternative instruments. Research limitations/implications The sample size is small as the study is limited to the listed financial sector of Oman. Future studies can be extended to include all of Oman's or GCC’s listed companies. Additionally, the intellectual capital is measured using the construct of VAIC which suffers some limitations and can be overcome using other tools such as content analysis. Practical implications The findings of this study suggest that Oman's regulators can create an awareness strategy on highlighting the importance of intellectual capital for companies (board of directors and managers), investors, debtors and creditors. Further, Oman's Capital Market Authority and Muscat Securities Market need to strengthen the regulations related to intellectual capital. Originality/value This study extends intellectual capital and corporate governance literature by presenting the research outcome for Oman's financial sector. It is useful for Oman's financial sector companies to direct corporate governance measures for driving value creation of firms through the management of intellectual capital efficiency.

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