DETERMINANTS OF INTELLECTUAL CAPITAL
PERFORMANCE IN IRAQ BANKS
BY
NOORA SABAH BAHAALDIN
A dissertation submitted in fulfilment of the requirement for
the degree of Master of Science in Accounting
Kulliyyah of Economics and Management Sciences
International Islamic University Malaysia
DECEMBER 2013
ABSTRACT
Currently, intellectual capitalhas emerged to become the backbone of any successful
business activity. Thus, the performance of intellectual capital in Iraqi banks is a
subject of this study that aims to examine the factors that determinants intellectual
capital performance which are (bank profitability, efficiency of investment in IC, bank
risk, and barriers to entry). The research was based on secondary data for the annual
financial reports of Iraqi banks for the years 2006-2011 where the study utilised
sixteen banks listed in the Securities Commission of Iraq. Pulic Model is used as a
measurefor VAIC and the data collected was analyzed using several methods such as
Pearson Correlation and General Linear Regression. A total of four research questions
are developed to examine the associations between intellectual capital performance
(dependent variable), and profitability of banks, efficiency of investment in IC, bank
risk and barriers to entry (independent variables).Findings showed a statistically
significant relationship between the independent variables and the dependent variable,
and thus, it supported three out of four research hypotheses. The study suggests
additional research to examine the determinants of ICP prior to any generalization of
the study results. Moreover, the empirical tests are confined to Iraqi bank sector for
the period 2006-2011 and thus, the study results may not be extended to other sectors
or to other study periods. The study highlights the importance of being identify the
factors that determine intellectual capital performance which in turn increase the
ability of banking performance. Moreover, results of this research are in addition to
other sources related to the performance of intellectual capital in Iraq, as it provided
additional vision for the rest of the researchers for the purpose of development of
research in this area.
ii
‫ملخص البحث‬
‫حاليا‪ ،‬برز رأس املال الفكري ليصبح العمود الفقري ألي نشاط جتاري ناجح‪ .‬وبالتايل فأن‬
‫أداء رأس املال الفكري يف املصارف العراقية ىو موضوع ىذه الدراسة اليت هتدف اىل فحص‬
‫العوامل اليت حتدد اداء رأس املال الفكري واليت ىي (رحبية املصارف‪ ،‬وكفاءة االستثمار يف‬
‫رأس املال الفكري ‪ ،‬وخماطر املصرفية‪ ،‬وعوائق الدخول إىل السوق) ‪ .‬استند البحث على‬
‫البيانات الثانوية للتقارير املالية السنوية للمصارف العراقية للسنوات ‪ 2011- 2006‬حيث‬
‫مشلت عينة الدراسة ستة عشر مصرفا مدرجا يف ىيئة األوراق املالية يف العراق‪ .‬وقد استخدم‬
‫منوذج بولك كمقياس ل ‪ VAIC‬وإن البيانات اليت مت مجعها قد مت حتليلها عن طريق استخدام‬
‫عدة طرق مثل طريقة معامل االرتباط بيارسون واالحندار اخلطي العام‪ .‬وقد مت تطوير جمموع‬
‫اربعة اسئلة حبثية خيتربالعالقة بني اداء رأس املال الفكري ( املتغري التابع) رحبية املصارف‪،‬‬
‫وكفاءة االستثمار يف رأس املال الفكري ‪ ،‬وخماطر املصرفية‪ ،‬وعوائق الدخول إىل السوق‬
‫(املتغريات املستقلة)‪ .‬وأظهرت النتائج وجود عالقة ذات داللة إحصائية بني املتغريات املستقلة‬
‫واملتغري التابع‪ ،‬وبالتايل‪ ،‬فإنو يؤيد ثالثة من أصل أربعة فرضيات البحث‪ .‬تقرتح الدراسة حبوث‬
‫إضافية لدراسة حمددات أداء رأس املال الفكري قبل أي تعميم لنتائج الدراسة‪ .‬عالوة على‬
‫ذلك‪ ،‬تقتصر االختبارات التجريبية للقطاع املصريف العراقي للفرتة ‪ 2011- 2006‬وهبذه‬
‫الطريقة ‪ ,‬فإن نتائج الدراسة رمبا مل يتم توسيعها اىل قطاعات اخرى او فرتات دراسة اخرى‬
‫ان الدراسة تسلط الضوء على امهية التعرف على العناصر اليت حتدد اداء رأس املال الفكري‬
‫والذي بدوره يزيد من قدرة اداء املصارف‪ .‬فضال عن ذلك‪ ،‬نتائج ىذا البحث ىي إضافة‬
‫أخرى إىل املصادر اليت تتعلق بأداء رأس املال الفكري يف العراق‪ ،‬كما أهنا قدمت رؤية إضافية‬
‫لبقية الباحثني لغرض تطوير البحوث يف ىذا اجملال‪.‬‬
‫‪iii‬‬
APPROVAL PAGE
I certify that I have supervised and read this study and that in my opinion it conforms
to acceptable standards of scholarly presentation and is fully adequate, in scope and
quality, as a dissertation for the degree of Master of Science in Accounting.
……………………………….
Sherliza Puat Nelson
Supervisor
……………………………….
Zaini Zainol
Co-Supervisor
I certify that I have read this study and that in my opinion it conforms to acceptable
standards of scholarly presentation and is fully adequate, in scope and quality, as a
dissertation for the degree of Master of Science in Accounting.
……………………………….
Hafiz Majdi Abdul Rashid
Examiner
This dissertation was submitted to Department of Accounting and is accepted as a
fulfilment of the requirement for the degree of Master of Science in Accounting.
……………………………….
Noraini Mohd Ariffin
Head, Department of
Accounting
This dissertation was submitted to Kulliyyah of Economics and Management Sciences
and accepted as a fulfilment of the requirement for the degree of Master of Science in
Accounting.
……………………………….
Nik Nazli Nik Ahmad
Dean, Kulliyyah of Economics
And Management Sciences
iv
DECLARATION
I hereby declare that this dissertation is the result of my own investigations, except
where otherwise stated. I also declare that it has not been previously or concurrently
submitted as a whole for any other degrees at IIUM or other institutions.
Noora Sabah BahaAldin
Signature………………………………
Date…………..………...
v
INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA
DECLARATION OF COPYRIGHT AND AFFIRMATION OF
FAIR USE OF UNPUBLISHED RESEARCH
Copyrights © 2013 by International Islamic University Malaysia. All rights reserved.
DETERMINANTSOF INTELLECTUAL CAPITAL
PERFORMANCE IN IRAQ BANKS
I hereby affirm that the International Islamic University Malaysia (IIUM) holds all the
rights in the copyright of this work and henceforth any reproduction or use in any
form or by means whatsoever is prohibited without the written consent of IIUM. No
part of this unpublished research may be produced, stored, in a retrieval system, or
transmitted, in any form or by names, electronic, mechanical, photocopying, recording
or otherwise without prior permission of the copyright holder.
Affirmed by Noora Sabah BahaAldin
……………………….
Signature
………………………
Date
vi
ACKNOWLEDGEMENTS
First and foremost, praise and gratitude go to Allah SWT, the Almighty, for bestowing
on me with great strength, patience, and courage in completing my program of study
and for the successful completion of this thesis.
There are a number of individuals whom I owe my deepest gratitude. Firstly,
my sincere appreciation, gratitude and heartfelt thanks go to my Main supervisor, Dr.
Sherliza Puat Nelson and Co-supervisor Dr. Zaini Zainol, the dedicated and inspiring
mentor for their continuous guidance, suggestions, and constructive criticisms all in a
bid to make this work a success. I thank them very much. Secondly, my heartfelt
gratitude also goes to all lecturers in Kulliyyah of Economics and Management
Sciences, International Islamic University Malaysia that have taught me.
With deep sense of affection, I would like to acknowledge my mother, the
source of love and compassion to the candle that lit the path of my life, to the spirit
that surrounded me with the warm fragrance of love and security. To my late father,
your presence still remain evergreen in my memory for the indelible mark you left in
me and for making me what I am today, may your gentle soul continue to rest in
peace, Amin.
To all my brother, sisters and family members, I say a big thank for the moral
and financial support you all rendered to see to the successful completion of my
studies, may the Almighty Allah reward you all, Amin.
Finally, I would like to acknowledge all my friends here in IIUM and Iraq, for
the tremendous support you all rendered to me, standing by me through bad and good
times, I will forever cherish your friendship and may Almighty Allah continue to
spare our lives and grant us long life, Amin.
vii
TABLE OF CONTENTS
Abstract .................................................................................................................... ii
Abstract in Arabic .................................................................................................... iii
Approval Page.......................................................................................................... iv
Declaration .............................................................................................................. v
Copyright Page ........................................................................................................ vi
Acknowledgement ................................................................................................... vii
List of Tables .......................................................................................................... xi
List of Figures .......................................................................................................... xii
List of Abbreviation ................................................................................................. xiii
CHAPTER 1: INTRODUCTION ........................................................................ 1
1.0 Introduction .......................................................................................... 1
1.1 Background of the Study ..................................................................... 1
1.2 Problem Statement ............................................................................... 3
1.3 Research Questions .............................................................................. 5
1.4 Objective of the Study .......................................................................... 6
1.5 Motivation of the Study ....................................................................... 7
1.6 Significance of the Study ..................................................................... 8
1.7 Organisation of the Study .................................................................... 9
1.8 Conclusion ........................................................................................... 11
CHAPTER 2: LITERATURE REVIEW ............................................................ 12
2.0 Introduction .......................................................................................... 12
2.1 Overview of the Macro Environment In Iraq ....................................... 12
2.2 Iraq Banking Sector ............................................................................. 13
2.3 Definitions of Intellectual Capital (IC) ................................................ 15
2.4 Classification of Intellectual Capital .................................................... 16
2.5 The Role and Contributions of Intellectual Capital (IC) ..................... 18
2.6 Previous Studies on Intellectual Capital (IC) ....................................... 20
2.7 The Gap in the Literature ..................................................................... 28
2.8 Conclusion ........................................................................................... 30
CHAPTER 3: THEORY AND HYPOTHESES DEVELOPMENT ................ 31
3.0 Introduction .......................................................................................... 31
3.1 Theories in Intellectual Capital ............................................................ 31
3.1.1 The Resource-Based Theory ....................................................... 31
3.1.2 Human Capital Theory ............................................................... 33
3.2 The Research Framework and Hypotheses Development ................... 34
3.3 Hypotheses Development .................................................................... 36
3.3.1 Bank Profitability ........................................................................ 36
3.3.2 Efficiency of Investment in Intellectual Capital ......................... 37
3.3.3 Bank Risk .................................................................................... 37
3.3.4 Barriers to Entry ......................................................................... 38
3.4 Conclusion ........................................................................................... 39
viii
CHAPTER 4: RESEARCH METHODOLOGY ............................................... 40
4.0 Introduction .......................................................................................... 40
4.1 Methodological Approach .................................................................... 40
4.2 Sample Selection .................................................................................. 40
4.3 Variablesmeasurement ......................................................................... 42
4.3.1 Dependent Variable .................................................................... 42
4.3.2 Independent Variables ................................................................ 44
4.3.2.1 Bank Profitability .............................................................. 45
4.3.2.2 Efficiency of Investment in IC .......................................... 45
4.3.2.3 Bank Risk .......................................................................... 46
4.3.2.4 Barriers to Entry ................................................................ 46
4.4 Regression Model ................................................................................ 47
4.5 Conclusion ........................................................................................... 48
CHAPTER 5: ANALYSIS OF RESULTSAND DISCUSSION ........................ 49
5.0 Introduction .......................................................................................... 49
5.1 Descriptive Analysis ............................................................................ 49
5.2 Diagnostic Tests ................................................................................... 51
5.2.1 Normality Analysis ..................................................................... 51
5.2.2 Multicollinearity Test ................................................................. 52
5.2.3 Heteroskedasticity ....................................................................... 54
5.3 Hausman Test ....................................................................................... 55
5.4 Regression Analysis ............................................................................. 55
5.4.1 The Relationship between HCE, SCE, CEE and Independent
Variables .............................................................................................. 58
5.4.1.1 The relationship between HCE and independent variables 59
5.4.1.2 The relationship between SCE and independent variables 59
5.4.1.3 The relationship between CEE and independent variables 59
5.5 Discussion of Result ............................................................................ 59
5.6 Conclusion ........................................................................................... 64
CHAPTER 6: RESEARCH CONCLUSION ..................................................... 65
6.0 Introduction .......................................................................................... 65
6.1 Summary of the Study ......................................................................... 65
6.2 Limitations of Study ............................................................................ 66
6.3 Significant of the Study ....................................................................... 66
6.4 Implications of the Study ..................................................................... 67
6.4.1 Implications for Theory .............................................................. 67
6.4.2 Implications for Practitioners ..................................................... 67
6.4.3 Implications for Researchers ...................................................... 68
6.4.4 Implications for Stakeholders ..................................................... 69
6.5 Recommendations for Future Research ............................................... 69
6.6 Conclusion ........................................................................................... 70
BIBLIOGRAPHY ................................................................................................. 71
APPENDIX (A1): DESCRIPTIVE ...................................................................... 77
APPENDIX (A2): NORMALITY ........................................................................ 79
ix
APPENDIX (B1):THE CORRELATION BETWEEN THE DEPENDENT
AND INDEPENDENT VARIABLES ................................................................. 81
APPENDIX (B2): THE CORRELATION BETWEEN THE INDEPENDENT
VARIABLES ..................................................................................................... 82
APPENDIX (C): REGRESSION ......................................................................... 83
APPENDIX (D): GRAPH ..................................................................................... 86
x
LIST OF TABLES
Table No.Page No.
2.1
Summary of Previous Studies
25
4.1
Sample Selection
41
4.2
Definition of Variables
48
5.1
Descriptive Statistics (N=96)
50
5.2
Normality Statistics for Banks (2006 - 2011)
52
5.3
The Correlation Coefficient Matrix for the Independent Variables
53
5.4
Variance Inflation Factor (VIF) for Independent Variable
54
5.5
Heteroscedasticity Test
55
5.6
GLS Regression Analysis
58
5.7
Summary of the Results
63
xi
LIST OF FIGURES
Figure No.
Page No.
2.1
Classification of Intellectual Capital based on Skandia‟s Value Scheme
16
3.1
The Research Framework
35
5.1
Histogram of Normality
51
5.2
The relationship between independent variables and HCE, SCE, CEE
58
xii
LIST OF ABBREVIATIONS AND TERMS
CBI
CE
CEE
CPA
DV
FASS
GDP
GLS
HC
HCE
IC
ICE
ICP
ISC
ITAGASS
IV
MENA
RBV
ROE
RTGS
SC
SCE
SERV
SME
VA
VAIC
VIF
Central Bank of Iraq
Capital Employed
Capital Employed Efficiency
Coalition Provisional Authority
Dependent Variable
Barriers to Entry
Gross Domestic Product
Generalized Least Square
Human Capital
Human Capital Efficiency
Intellectual Capital
Intellectual Capital Efficiency
Intellectual Capital Performance
Iraq Securities Commission
Bank Risk
Independent Variable
Middle East and North Africa
Resource-Based View
Bank Profitability
Real Time Gross Settlement
Structural Capital
Structural Capital Efficiency
Efficiency of Investment in Intellectual Capital
Small and Medium Sized Enterprises
Value Added
Value Added Intellectual Coefficient
Variance Inflation Factor
xiii
CHAPTER 1
INTRODUCTION
1.0
INTRODUCTION
The present chapter is the introductory chapter of the research. It provides an
overview of the background of the study, the problem statement, the study objectives
and the study motivation. It also covers the significance of the study. The organisation
of chapters is provided at the end of the chapter.
1.1
BACKGROUND OF THE STUDY
Intellectual capital has replaced traditional factors of production like physical capital
owing to the fact that current industries cannot be dependent solely on physical
capital. They must also depend on the knowledge of their employees in order to
sustain competitive advantage of the firm. Therefore, intangible assets such as
knowledge and innovation have become more significant for current business success
as opposed to the traditional tangible assets like physical assets; in other words,
knowledge in this day and age has become the most significant resource (Drucker,
1999). Individual and organisational knowledge is also known as intellectual capital
(IC) and it is the major strategic aspect in the acquisition of the competencies of the
firm (Liew, 2008).
Additionally, IC, intangible assets and knowledge capital are interrelated. This
is evident by the organisational resource structure that has been transforming in the
past decades. Moeller (2009) contended that modern organisations have shifted from
their focus on physical assets towards the use of intangible assets in their operations.
1
The scenario of shift is such that while traditional industrial corporations depend
highly on the physical assets of buildings, raw materials, production facilities and
infrastructure facilities, modern organisations make use of intangible production
elements of value creation; these elements include innovation, information
technology, communication technology and people with knowledge (Moeller, 2009).
Every aspect of human life experienced growth and development in the past
few decades and this growth primarily stems from the development in science and
technology. Specifically, human intellectual ability facilitated robust inventions and
innovations which contributed to the development and results in the gathering of
significant amount of knowledge.
Owing to the intangible nature of IC, it is quite challenging to measure. Prof.
Ante Pulic brought forward a methodology to measure physical and intellectual
capital as an alternative quantitative approach in measuring intellectual capital
efficiency. The VAIC™ is a formula used to evaluate the IC efficiency on the basis of
three components namely the human capital efficiency (HCE), the capital employed
efficiency (CEE) and the structural capital efficiency (SCE) (Pulic and Bornemann,
1997).
Moreover, intellectual capital research is best performed in the banking sector
as the sector comprises of significant human competence on the basis of its workers‟
tacit knowledge and experience. The sector‟s employees are characterized as more
homogeneous compared to their economic counterparts and the nature of business
within is primarily personally intensive (Mavridis, 2004).
The intangibles are becoming more important in the companies‟ value creation
and therefore, they have become critical in the area of corporate finance as well as in
capital markets (Holland, 2003). Owing to their importance, intangible assets are
2
increasingly considered in wealth creation in the present more than it was in the past
(Bontis, 2003) and this is evidenced by the significant modifications in role of
knowledge in the context of value creation. This in turn increases the information
asymmetry between the company providers and external users of information.
The main challenges faced by the IC in the Arab world include the waste of
human capital, and low employment opportunities if compared to population growth,
lack of skills and lack of training opportunities(al-Khouri, 2002). The concept of IC is
innovative in the global business environment, particularly in Iraq.
1.2
PROBLEM STATEMENT
Current studies dedicated to IC have been receiving significant attention in the past
decade from practitioners/academicians in the context of developed countries. On the
other hand, its development has not reached its potential in the developing countries
especially in the Middle-East countries such as Iraq. In the past thirty years, Iraq has
experienced adverse state intervention, costly militarization, three wars and more than
ten years of sanctions from the international arena. The situation was such that, fiscal
and monetary policies were wholly subordinate to political aims. Even prior to taking
the reparation claims into consideration, Iraq is among the most significantly indebted
nations in the world. To make matters worse, efforts at facilitating economic activity
has been riddled with hostilities, looting and sabotage activities. Although the
Coalition Provisional Authority (CPA) along with Iraqi officials have taken steps to
prevent such activities, security conditions have made it challenging for economic
activity to initiate. The budget allocation for the second half of 2003 met with many
challenges, indicating disruptions in the payments system and infrastructure. But in
3
August 2003, both wage and pension payments have been established and regularized
with rehabilitation work was reported to be underway.
Iraq is an interesting country to study due to its background that had faced
wars and economic sanctions for years. In its effort to improve the country‟s economic
development, intellectual capital is considered as one of the assets that may bring
future advantages for the economy. In developing the nation, there are challenges, and
among them is sustaining human capital within the country. Human capital as part of
IC reflects the basis of knowledge competencies and abilities of the nation to enhance
living standards.
In relation to the above, among the intellectual capital components, human
capital is considered one of the most important resources depended on by firms for the
improvement of their efficacy and to gain competitive advantage (de Pablos, 2003).
Therefore, judging from the changes taking part in Iraq‟s local economy, the trends
inclined towards foreign investment and entry of foreign banks as financial
institutions constitute the elements of knowledge qualifying them to attract customer
segments. This adds more challenge to local banks and raises the need to modify the
perception of current banking methods and systems in order to meet competitive
challenges. The most significant of these challenges is foreign investment in banking
which is characterised by experience and expertise in the banking operations
processes. The challenge also lies in employees‟ unawareness of their significant role
in the process of value creation, less efficient government, and lack of reliable
indicators for business success and hence, Iraqi banks lost the citizens‟ confidence.
Goh (2005) argues that corporate activity is strongly influenced by two factors:
physical capital and human capital. Human capita l is not able to carry out their
activities without any physical capital.
4
In the agricultural and industrial sectors, physical capital (such as land labour)
is more important than the intellectual capital in the process of value creation. But in
the banking sector, intellectual capital (such as science knowledge) is more important
than physical capital in the value creation process ( El - Bannany 2008 ) This is one
reason the research on the banking sector. Mavridis (2004) which states that the
banking sector is an exciting area and is ideal for intellectual capital research because
this sector is one of the most intensive sectors of the IC implementation of its business
activities.
As such, the present study attempts to investigate the determining of
intellectual capital performance (ICP) among Iraqi banks. The study also aims to
analyze the association between bank profitability, efficiency of investment in IC,
bank risk and barriers to entry with the ICPas measures of bank performance in the
context of Iraqi listed banks from 2006-2011.
1.3
RESEARCH QUESTIONS
The research aims to answer the following questions;
1.
Is the profitability of Iraqi banks significantly related to their intellectual
capitalperformance?
2.
Is the efficiency of investment in intellectual capital of Iraqi banks
significantly related to its intellectual capital performance?
3.
Is the risk of the Iraqi banks significantly related to their intellectual
capital performance?
4.
Is the barrier to entry in Iraqi banking sector significantly related to
intellectual capital performance?
The above questions raises the practical objectives provided in the next section.
5
1.4
OBJECTIVE OF THE STUDY
In order to provide the answers to the above study questions, the main objective of the
study is to examine and analyze the impact of bank profitability,efficiency of
investment in IC, bank risk and barriers to entry upon intellectual capital performance,
as a measure of listed Iraqi banks performance in a period from 2006-2011. The
specific objectives are;
1.
To determine the association between profitability of Iraqi banks and their
ICP. Banks directors that making higher profits may be more inclined
compared to their counterparts in supporting methods to raise the
efficiency of the ICPdimensions which could result in superior financial
results.
2.
To examine the association between efficiency of investment in
intellectual capital and ICPin Iraqi banks. Considering the staff cost,
human capital may be viewed as an investment which is expected to
contribute to the company‟s value creation. Consequently, the more
efficient the investment is, the higher will be the contribution to value
creation and this should motivate bank employees to keep on innovating in
terms of new products/services or enhancement of business process to
maintain investment efficiency in intellectual capital.
3.
To examine the association between bank risk and the ICPamong Iraqi
banks. Banks can be motivated to increase the efficiency of IC as a way to
lessen the negative impact of risk on the investors and customers‟
perceptions.
4.
To examine the association between barrier to entry and ICPamong Iraqi
banks. Barriers to entry primarily acts as barrier that prevent newcomers to
6
the business from entering the market and this may urge existing
businesses to refrain from undertaking innovative activities for market
competition. In turn, this may adversely impact IC.
The investigation into the determinants of intellectual capital performance
among Iraqi banks may assist in taking the right actions in developing their
performance and using their value creation. This may be invaluable for banking
regulators in their handling of factors that affect ICP. Hence, the present study
attempts to investigate the determinant of Iraqi banks intellectual capital performance.
1.5
MOTIVATION OF THE STUDY
The present study has multiple motivations. To start with, an increasing emphasis has
been placed on the profession and the academic‟s role of the ICPas part of the
knowledge economy of the firm. Moreover, in order to control the improvement of
banks throughout the years, measuring IC becomes significant in estimating their real
value and in improving the banks management of intellectual resources generating
value and benefits. Moreover, motivation also lies in the factors affecting the ICP as a
measure of listed Iraqi banks performance. This ICPassists in the development of an
effective performance measurement system in the quest to achieve long-term
success.Currently,in theIraq‟s economy has been growing at rate of 10% becauseofthe
high prices of oil. Notwithstanding,the improvement of standards living is slowly.
Thus, much of investments are needed immediately, especially in manufacturing field,
where the commercial bank should be taken in to consideration(Salem, 2012).
The importance of intellectual capital is a competitive advantage of the bank services
when the bank policy interest in IC , it can help to encourage the employers to spend
more effort either physical or intellectual , which increase the standard of the bank
7
services. Moreover, the competitive among the performance of employers can help to
generate new idea which leads the bank to promote the facilities and services that have
been given to the customers.
Since Iraq suffer many wars the government focused on the military and neglect the
economic side, that had negative effect on Iraq economy , even though Iraq has many
resources as well as huge amount of oil. Some policies resort to improve the IC to
increase the banks profits and promote the activation of economy. This development
will provide many opportunities of jobs and reduce unemployed as well as Increase
the direct and indirect taxes, which attract the investors to invest their money in the
country, on the other hand the success of the bank and the high standard of services
which given would generate strong confidence between the bank and citizens.
Based on these motivations, this study examines the ICPamong Iraqi listed banks.
1.6
SIGNIFICANCE OF THE STUDY
Researchers in the Arab world, particularly Iraq, have largely overlooked the subject
of intellectual capital. This study contributes by clarifying the importance of
acknowledging IC and its development. It is imperative to investigate the association
between IC and its factors to have a clear knowledge concerning bank performance.
The present study significantly contributes to multiple fields as this section elaborates.
1.
This study will enable banks to benchmark themselves on the basis of the
ranking of their efficiency levels, in order to lay down priorities and to
create strategic plans which are aimed to enhancing future performance
(Goh, 2005).
8
2.
The study findings will assist stakeholders and investors in assessing the
banks potential creation of value.
3.
It allows policy makers to develop and implement policies in order to
establish a robust banking sector, particularly in Iraq.
4.
It plays a good role in being a source of reference for future studies
dedicated to Iraqi banking sector as it is a pioneering study of the Iraqi
bank performance based on IC.
In addition to the above, the study findings will also provide the banking
regulators with significant determinants of IC in order for them to consider the factors
that influence ICP, to develop performance and to increase value creation. It is
expected that this study‟s findings will improve the understanding of the significance
of measuring ICPin the context of Iraq and will encourage additional research on the
topic.
1.7
ORGANISATION OF THE STUDY
This dissertation is organised as follows;
Chapter one commences the study and hence it is also referred to as the introduction
of the study. It includes the background of the study, the problem statement, study
objectives and study motivations. This is followed by the discussion co ncerning the
study significance. The organization of the whole dissertation is explained towards the
end.
Chapter two is divided into four sections with section one providing an
overview of the macro environment and an overview of the Iraqi banking sector. This
is followed by section two that deals with the definition and classification of IC. The
third section provides a review of the role and contribution of IC and prior literature
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dedicated to the topic. The final section sheds a light on the gap found in literature and
the chapter conclusion.
Chapter three consists of the discussion of the theories relevant to the study,
and the development of study hypotheses. The first section of the chapter explains the
theoretical framework of the study. This is followed by an overview of the resourcebased theory and the Human Capital theory. The final section includes the
development of hypotheses. The theoretical framework of the study is created to
support the developed hypotheses.
Chapter four providesthe research design of the study and the measures of the
independent variables involving bank profitability (ROE), efficiency of investment
(SERV), bank risk (ITAGASS) and barriers to entry (FASS).
Chapter five provides the study findings of the association between the ICP
and bank profitability, efficiency of investment in IC, bank risk and barriers to entry.
The chapter is divided into four sections. The first section deals with the descriptive
analysis of data and study variables. This is followed by the second section w hich
contains the discussion concerning the normality of data distribution. The third section
provides the correlation analysis which presents the strength of the association
between variables and issues of multicollinearity and heteroscedasticity. The fourth
section contains the explanation of the Hausman test conducted to select suitable
regression model and the final section discusses the outcomes of the panel data
regression analysis that comprises the main study findings. The chapter ends with the
chapter conclusion.
Chapter six concludes the study through three sections. The first is the
summary of study findings;the second section provides a discussion of the limitationof
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the study. The final section contains the contribution and implications of the study and
the chapter conclusion is provided at the end.
1.8
CONCLUSION
This chapter is the introductory chapter of the study and includes eight sections
namely, the introduction, problem statement, research questions, research objectives,
study motivations and significance of the study. Each section offers a clear insight into
the study topic, its significance in the current times and the study context and sample.
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