A STUDY ON INTELLECTUAL CAPITAL AND FINANCIAL PERFORMANCE OF SRI LANKAN BANKS

Abstract

Intellectual Capital has been recognized as an important corporate asset which plays an important role for extraordinary financial performance. This study is conducted to examine the impact of Intellectual Capital (IC) on Financial Performance (FP) in the context of Sri Lankan banks for the period of 2008 to 2017. Value Added Intellectual Coefficient (VAIC) methodology developed by Ante Pulic (2000) is employed in this study to form a measurement basis for the IC. Return on Equity (ROE) and Market to Book Value Ratio (M/B) measure the FP of selected banks. The data obtained from corporate annual reports are regressed to measure the impact of IC on FP. Findings of this research indicate that, IC has a significant positive impact on FP of Sri Lankan banks. Hence, outcomes of this research would motivate bankers to apply knowledge management practice in their institutions. Moreover, study provides valuable inputs to the stakeholders and potential investors to assess the value creating capabilities of selected banks. This study emphasize the importance of decision makers’ awareness about the IC as a key factor that can enhance a firm’s ability to maintain their competitive position.