Effect of intellectual capital efficiency on financial performance: Evidence from Ethiopian commercial banks

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Addis Ababa University


This paper adopted Pulic (1998) model known as Value Added Intellectual Coefficient™ (VAIC™) to measure the effect of Intellectual Capital (IC) efficiency on the Ethiopian commercial banks financial performance of as measured on return on asset (ROA). Purposively sampled 15 commercial banks, which enable to answer research questions by focusing on particular characteristics of a population that are of interest, 75 observations for 5 years data from 2013 to 2017 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 firm size (SIZE), constructed from the annual financial statements. The assumptions needed to be fulfilled for OLS were tested; the residual was found homoscedastic, free of multicollinearity, free of autocorrelation and normally 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 commercial banks while capital employed efficiency (CEE) has statistically insignificant relationship with the financial performance as measured by ROA. The study also provided evidence for existence of negative significant relationship between firm size and ROA. Based on the findings, recommended that, bank managers to establish separate department for proper record of all IC components and policy makers to take in to account human capital and structural capital while setting up policies and procedures so as not to negatively affect the financial performance.


A thesis submitted to Addis Ababa university faculty of business and economics department of management in partial fulfillment of the requirements for the degree of masters of Science in management


Ethiopian commercial banks, Financial performance, Intellectual capital