LITERATURE REVIEW
IC refers to the knowledge that is embedded in employees as well as in
the structure of the firm (Edvinsson & Malone 1997). The knowledge or
know-how depending on its productivity represents the value human
capital provides to the value generating process. According to the
Shranel (2012), IC has three distinct feature, namely: future economic
value, lacks physical substance, and can, to some extent, be owned and
traded by firms.
IC can be segregated into two types: human capital and structural
capital. Human capital (HC) refers to the knowledge, skills and
experience that reside in employees (Edvinsson & Malone 1997; Roos,
Roos, Dragonetti & Edvinsson 1997; Stewart 1997). Structural capital
(SC) refers to the knowledge that resides in company assets other than
employees such as systems, products, processes, patents, trademarks,
brand names, customer databases, collaborations and networks (Edvinsson
cannot be owned and controlled by firms, whereas SC can be owned and
even traded (Edvinsson & Malone 1997).
It is of great significance for any organization to decide on the level
of debt and equity for running their business successfully. There is a
lot of work done on capital structure determination but this is
relatively new dimension to relate it with IC to check its impact on
value addition and valuation process of an organization. Modigliani and
Miller (1985) worked on capital structure determination but in a very
restricted environment. Services sector, specifically banks are selected
for this study to compare them in terms of their value created by their
IC efficiency, as banking sector is a knowledge-intensive sector.
Saint-Onge’s, (1996) model developed in the early 1990s divides
intellectual capital into three parts: Human capital, Structural
capital; and Customer capital. Also Edvinsson (1997) agrees that
intellectual capital comprises human capital, structural capital and
customer capital. Bontis (2000) adjusts customer capital into relational
capital arguing that it not only the customer’s contribution that
affects intellectual capital but the whole lot of relations with
customers, suppliers, shareholders and other partners. Tseng and Goo
(2005) categorized intellectual capital (IC) framework in terms of human
capital, organizational capital, innovation capital and relationship
capital. Therefore following from the above arguments, intellectual
capital is expressed mathematically as: IC = Human Capital (HC) +
Structural Capital (SC) + Relational Capital (RC).
The study is explained by resource based theory, epistemology and
knowledge based theories. While the resource based theory focused
largely on industrial revolution based firm set up with focus on
inventory and physical assets. The epistemology approach emphasized on
abstracted attributes similar to the knowledge based theory, but however
focuses more on intuitive knowledge such as faith, belief and intuition.
The knowledge based theory is rather more plausible in explaining this
study because the key premises of its arguments and assumptions are
situated around knowledge management and its indispensability in
managing modern service oriented firms. Based on certain premises
regarding the nature of knowledge and its role within the firm, the
theory explains the rationale for the firm, the delineation of its
boundaries, the nature of organizational capability, the distribution of
decision-making authority and the determinants of strategic alliances.
According to Barton (1996) and Grant (2000), the key elements of the
theory follows the path of previous efforts evidenced by extant studies
on the measurement and management of intellectual capital.
The NSE listed banks provides a potent case for examining the IC
efficiency in the corporate sector. Although similar efforts were put in
by extant studies like Ekwe (2013a, b). The study made valuable
contribution on IC studies in developing economy like Nigeria especially
in the banking sector. Though the findings were germane and succinct in
capturing and revealing the impact of IC on FP, it’s focused was more on
direct relationship. The study equally used three year data analysed
through OLS regression.