Intellectual capital and bank profitability: Evidence from conventional and Islamic bank in Indonesia

Danes Quirira Octavio; Yuli Soesetio

Intellectual capital and bank profitability: Evidence from conventional and Islamic bank in Indonesia

Danes Quirira Octavio, Yuli Soesetio

Abstract

This study investigates the effect of intellectual capital on bank profitability. In addition, we also analyze the effect of intellectual capital on bank profitability based on bank types, conventional and Islamic bank. Our data consist of conventional and Islamic banks operated in Indonesia from 2010 to 2016 annually. Since our data are a panel, we employ panel regression. Intellectual capital is measured by using Value Added Intellectual Capital (VAIC). Our result shows that intellectual capital has a positive significant impact on bank profitability. After data classified based on bank types, intellectual capital only has a positive significant effect on conventional bank profitability. We also attempt to estimate the impact of VAIC components, such as Human Capital Efficiency (HCE), Structural Capital Efficiency (SCE) and Capital Employed Efficiency (CEE), on bank profitability. The results show that the impact of HCE is strongly significant in both banks. However, CEE and SCE do not have a significant effect on both types of bank profitability. Our results indicate that conventional banks synergize their intellectual and physical capital in creating profit better than Islamic banks. Thus, this research could be a critique of the Indonesian Islamic banking industry in determining and overcome their weakness.

JEL Classification: G21, G32, G32

DOI: https://doi.org/10.26905/jkdp.v23i2.3028

Keywords

Bank profitability, Intellectual capital, Value Added Intellectual Capital (VAIC)

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Jurnal Keuangan dan Perbankan (Journal of Finance and Banking)

Diploma Program of Banking and Finance, Faculty of Economics and Business, University of Merdeka Malang

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