Intellectual capital, bank stability and risk-taking: evidence from Asian emerging markets

Abstract

Purpose

The purpose of this paper is to investigate the impact of intellectual capital (IC) efficiency on the banks’ risk-taking and stability of Asian emerging markets.

Design/methodology/approach

This study uses a sample of 204 listed banks from 12 Asian emerging countries for the period 2010 to 2019. Data were analyzed using Ordinary Least Squares regression and checked for robustness using system generalized methods moment (GMM) estimation. The dependent variable of bank stability is measured using Z-score-based return on assets (ROA) and return on equity (ROE). The second dependent variable of bank risk is proxied by the standard deviation of ROA, ROE, non-performing loans and loan loss provision.

Findings

The results suggest the IC efficiency has no association with bank risk-taking and stability. The findings lend no support to the resource-based theory. The robustness of this result is confirmed by the system GMM estimation. However, support is found for the competition fragility view as high market power is associated with low risk-taking. The IC subcomponents, human capital efficiency (HCE) report a negative coefficient for bank risk-taking thereby having no support for the hypothesized relationships. Diversified banks with a higher deposit to total asset ratio resort to high risk-taking.

Research limitations/implications

IC efficiency does not have an impact on the bank’s risk-taking behavior and stability for Asian banks. Managers can use these findings to improve their IC and boost investor confidence. Regulatory authorities should increase its monitoring function of banks when the GDP decreases as risk-taking behavior are galvanized during this period.

Originality/value

This research is one of the first to provide empirical evidence of IC efficiency’s relationship with bank stability and bank risk-taking. The implications are useful for policymakers, managers and governing bodies to enhance the banks’ IC efficiency.

Citation

Dalwai, T., Singh, D. and S., A. (2022), "Intellectual capital, bank stability and risk-taking: evidence from Asian emerging markets", Competitiveness Review, Vol. 32 No. 6, pp. 995-1024. https://doi.org/10.1108/CR-03-2021-0031