Intellectual capital and technical efficiency of banks in an emerging market: a slack-based measure

This paper investigates the impact of intellectual capital and its components on slack-based technical efficiency (SBM-TE) of banks.

Data envelopment analysis is used to compute SBM-TE scores and the Value-Added Intellectual Coefficient (VAIC™) model is used to measure intellectual capital. An unbalanced panel of 32 banks that operated from 2000 to 2017 has been used.

Overall, the efficiency scores are averaged at 79%, suggesting that an inefficient bank needs to enhance technical efficiency by 21% to be at par with the best performing banks. Beta-convergence and sigma-convergence exist among banks with faster speed evident among listed and local banks. Intellectual capital has a positive impact on SBM-TE and human capital is the main driver of technical efficiency among banks. This result is specifically evident among non-listed banks and foreign banks. Economies of scale property are also evident among the banks. Competition and asset tangibility inhibit technical efficiency among banks.

Banks are advised to invest in value-adding emerging technologies and their employees so as to enhance their efficiency. The study offers insights for policymakers, practitioners and researchers in emerging markets.

The study is premier in employing the SBM-TE to explain the intellectual capital and efficiency nexus, as well as, testing for both beta-convergence and sigma-convergence.