Exploring the role of intellectual capital in shaping bank performance: evidence from Indonesia

Purpose This paper applies two Value-Added Intellectual Coefficient (VAIC) measures, namely the conventional VAIC (C-VAIC) and the extended VAIC (E-VAIC), aiming to examine the impact of the aggregate VAIC and each individual VAIC component, including human capital efficiency (HCE), structural capital efficiency (SCE), capital employed efficiency (CEE), innovation capital efficiency (INCE) and relational capital efficiency (RCE), on bank performance. Design/methodology/approach This study utilizes panel regression models with time-fixed effects to investigate the effects of the aggregate VAIC and its individual components on bank performance by analyzing 323 observations from 47 publicly listed Indonesian banks between 2014 and 2023. Findings The findings indicate that the aggregate E-VAIC exhibits a significant and positive impact on bank performance, while the aggregate C-VAIC shows an insignificant effect. Among the VAIC components, HCE and CEE negatively affect profitability (ROA and ROE) and productivity (ATO) but positively impacts market value (MB), whereas SCE has no effect on bank performance. Moreover, the additional E-VAIC components demonstrate that INCE negatively affects profitability and market value, while RCE positively influences market value. Research limitations/implications This study limits its generalization since the sample is based on the Indonesian banking industry. Despite the limitation, the results suggest that banks in Indonesia should prioritize intellectual capital management, given its strategic function in boosting firm performance. Practical implications This study provides both theoretical and practical insights into intellectual capital management, underscoring its critical role in enhancing bank competitiveness in emerging markets. Banks can leverage strategic investments in intellectual capital to elevate operational efficiency, while regulatory authorities can enforce policies that encourage intellectual capital development. Originality/value This research is one of the first few studies to compare the C-VAIC method and the E-VAIC method to explore the relationship between intellectual capital and bank performance by incorporating time-fixed effects.