"Intellectual Capital and Bank Performance in Europe"

"The purpose of this paper is to: • Obtain measures of Intellectual Capital (IC) performance for quoted banks in some European Countries (Chech Republic, Denmark, Finland, Germany, Italy, Norway, Poland, Spain, Sweden) during the period 2004-2007. • Empirically investigate the relationship between the value creation efficiency and firms’ market valuation and financial performances. • Test the effects of IC performance on profitability and evaluate whether or not IC can be considered a decision-making factor for investors. Using data drawn from public annual reports and Pulic’s Value Added Intellectual Coefficient (VAIC) as an efficiency measure of Capital Employed and Intellectual Capital, the study engages regression models to examine the relationship between corporate value creation efficiency and a firms’ market to book value ratios and corporate valure creation efficiency as measured by Pulic’s VAIC. Some of the important findings of the analysis include: • The correlation analysis shows whether there is or not a significant correlation between the financial performances of the banks and their VAIC coefficients. • Whether the Italian Banks are generally more or less efficient in the use of IC in relation to other European competitors. • The regression models investigate the hypothesis if investors place higher value on firms with greater intellectual capital ability or not. Some of the research limitations/implications of the analysis are: • This study fails to consider all the banks operating in the countries analyzed (for data insufficiency, in particular for those not listed) and, moreover, the analysis only cover 3 years of bank data. Practical implications of the analysis include: • Our results can assist the management of the respective banks in benchmarking their positions regarding intellectual capital. The study might also assist policy makers in formulating and implementing policy regarding intellectual capital development and aid investors in modifying investment strategies. Our study should be considered an experiment in the literature of intellectual capital, because it investigates the effects of intellectual capital performance on profitability in the banking sector cross countries comparison. JEL Classification: G21, O34, L25, J24, M12 Paper Type: Research Paper"