The Relationship between Intellectual Capital and Banks' Productivity in Pakistan

The performance of banks has been widely researched using accounting ratios, Tobin�s Q and market returns and less emphasis has been given to productivity measures. The productivity growth of banks is captured through Malmquist Productivity Index (MPI). The study then investigates the impact of intellectual capital on the productivity of banks in Pakistan. Value-added The intellectual Coefficient (VAIC) approach is employed to examine the intellectual capital of banks. Data is obtained from annual reports of 20 banks listed on the Pakistan Stock Exchange for 10 years (2007-2016). The panel corrected standard error approach is used for estimating the panel regression model. The findings provide evidence that the VAIC, human capital efficiency (HCE) and structural capital efficiency (SCE) has a positive impact on productivity growth (MPI). On the other hand, capital employed efficiency (CEE) has no significant impact on productivity growth. The VAIC approach may be useful for the banks and policymakers in a knowledge economy to integrate the intellectual capital in the decision-making process. Our results also suggest that banks in Pakistan shall increase spending on intellectual capital particularly on human capital and structural capital to elevate the intellectual capital of banks and subsequently get benefits in terms of increased productivity Keywords: Intellectual capital; Value added intellectual coefficient (VAIC); Malmquist productivity Index; Pakistan banking sector