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.