Intellectual Capital and Bank Profitability: Evidence from Serbia

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DOI:

https://doi.org/10.7595/management.fon.2022.0010

Abstract

Research Question: This paper examines how investing in Intellectual Capital (IC) influences bank profitability measured by return on average assets and return on average equity. Motivation: IC is a source of non-physical (added) value for innovative companies in the knowledge-based economy. In finance and banking, efficient use of IC is critical since a bank's capacity to supply high-quality services is based on its investment in IC. As a result, our goal was to throw light on the components of IC and examine how they relate to the commercial bank's financial performance in Serbia. Idea: The main idea behind this paper is to assess the relationship between components of IC and bank profitability. We used the three most common components: Human Capital Efficiency (HCE), Capital Employed Efficiency (CEE), and Structural Capital Efficiency (SCE), as well as control variables such as banks' size and leverage. Data: We used a Bankscope data set that included 27 Serbian commercial banks from 2011 to 2019, with 212 observations. Tools: We used Breusch–Pagan Lagrange multiplier and the Pesaran test to examine cross-section dependence. Based on the test results, we used the system generalized method of moments (GMM) to assess the relationship between IC components and bank profitability. Findings: In Serbian banking industry, both HCE and CEE considerably impact bank profitability. However, we couldn't find evidence that SCE contributes to bank profitability. Contribution: This paper adds to the existing literature on the relationship between IC and bank profitability. However, it also includes a policy recommendation for bank executives as we discovered that investing in IC can positively influence bank profitability.

Author Biographies

Isidora Ljumović, Institute of Economic Sciences, Belgrade, Serbia

Isidora Ljumović, PhD is a Senior Research Associate at the Institute of Economic Sciences in Belgrade. She graduated in the field of organizational sciences, and she got her Master's and Ph.D. degrees in the field of banking. She is engaged in several domestic and international projects, including projects financed by the MESTD RoS, the World Bank, the European Union, and other international donors. She has published two monographs and numerous scientific papers in domestic and international scientific journals and has participated in scientific conferences in Serbia and abroad. Her field of interest include entrepreneurial finance, entrepreneurship, and banking.

Jelena Minović, Institute of Economic Sciences, Belgrade, Serbia

Jelena Minović, PhD, is Senior Research Associate at the Institute of Economic Sciences in Belgrade. She acquired a PhD degree (2012) at the Faculty of Economics, University of Belgrade. Jelena graduated from European Business School (EBS University) in Wiesbaden, Germany for post-doc research stay from May 2013 to August 2013. Jelena participated in many international and national conferences. As the author and co-author, she published a significant number of papers (over 100). Her research interests are: Quantitative Methods and Models in Finance and Economics, Econometrics, Time Series Analysis, Financial Economics and Financial Markets. Her articles have been published in various international journals, such as Applied Economics, Journal of Balkan and Near Eastern Studies, Economic Research, Panoeconomicus, Engineering Economics, Mathematics, International Journal of Engineering Education, Polish Journal of Environmental Studies, Fresenius Environmental Bulletin, Economic Annals, Theoretical and Applied Economics, and others.

Slavica Stevanović, Institute of Economic Sciences, Belgrade, Serbia

Slavica Stevanović, Ph.D. is employed as a Senior Research Associate at the Institute of Economic Sciences in Belgrade. She graduated and she got her Master’s degree at the Faculty of Economics, University of Belgrade. She acquired her Ph.D. degree at the Belgrade Banking Academy - Faculty for Banking, Insurance, and Financing, University Union in Belgrade. Slavica participated in international and national scientific conferences and, as author and co-author, she published numerous scientific papers. Her research interests are financial reporting and analyses, cash flow analyses, and environmental reporting and accounting. She is engaged in several projects.

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Published

2022-10-26

How to Cite

Ljumović, I., Minović, J., & Stevanović, S. (2022). Intellectual Capital and Bank Profitability: Evidence from Serbia. Management:Journal of Sustainable Business and Management Solutions in Emerging Economies. https://doi.org/10.7595/management.fon.2022.0010

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Articles