Intellectual capital, borrowers' default risk, and digitalization: Allies or adversaries?

This study examines the effect of intellectual capital (IC) on borrowers' default risk, both directly and indirectly, through digitalization in MENA banks. The findings show a negative relationship between IC and borrowers' default risk. Moreover, digitalization partially mediates this relationship. Specifically, the human and structural components of IC reduce borrowers' default risk, whereas the relational capital component increases it. However, the capital employed component shows no significant effect on default risk. A partial mediation effect is observed for the human and structural components, while a complete mediation effect is identified for the relational component. The results reaffirm the direct relationship between IC and default risk for Conventional and Islamic banks. However, the indirect relationship, mediated by digitalization, is evident only for conventional banks.