Intellectual Capital: Its Impact on Financial Performance and Financial Stability of Ghanaian Banks

This paper is an attempt to investigate the effect of intellectual capital (henceforth IC, which is defined using Value Added Intellectual Coefficient (VAICâ„¢) as discussed in Pulic (2008, 2004, 2001, 1998) on financial performance and financial stability of 32 banks in Ghana from 2000 to 2015. The dataset is an unbalanced panel of 354 observations. The methodology of the paper is to test eight hypotheses related to IC and its components (Human Capital Efficiency or HCE, Structural Capital Efficiency or SCE and Capital Employed Efficiency or CEE) and their relationship with financial performance and financial stability. The paper finds support in favour of the claim that VAICâ„¢ has a positive and significant impact on financial performance and financial stability. On the other hand, among the components of VAICâ„¢, it is only HCE that behaves in a manner similar to VAICâ„¢. Among the other components, SCE has a negative impact on financial performance and financial stability. CEE has a positive impact on financial performance but a negative impact on financial stability. This implies that SCE reduces both financial performance and financial stability, while CEE increases financial performance but reduces financial stability. Effects of controls, such as leverage, bank size, concentration and ownership structure are discussed in some detail