Intellectual Capital and Islamic Banks' Performance; Evidence from Indonesia and Malaysia

This paper aims to investigate empirically the relationship between the Intellectual Capital (IC) efficiency consisting of human capital, structural capital and capital employed and Islamic banks performance in Indonesia and Malaysia. We employ independent sample t-test and regression analysis focusing on the period from 2010 to 2014. The results suggest that there are significant differences in intellectual efficiency scores, where Islamic Banks in Malaysia have exhibited better VAIC TM scores as compared to that of Islamic banks in Indonesia.While the regression analysis suggests that banks with better human capital efficiency tend to exhibit higher levels of profitability. Moreover, structural capital is not related to Islamic bank performance. The results also suggest that capital efficiency tends to exhibit higher profitability levels both in Indonesia and Malaysia. The findings may serve as a useful input for Islamic bankers to apply knowledge based management in their respective institutions and in addressing the factors affecting IC performance in order to establish priorities and develop strategic plans, which will in turn enhance their future performance to maximize their value creation.

Keywords: Intellectual Capital, Financial Performance, Islamic Banks