The Impact of Intellectual Capital on Corporate Performance of Islamic Financial Institutions

Intellectual capital (IC) is widely acknowledged as the most important source of value creation and competitive advantage for modern organizations. An increasing number of studies, including those for the financial services industry, have shown a significant relationship between IC and corporate performance. However, little is known with regards to Islamic financial institutions (IFIs). Hence, this paper contributes to the literature by investigating the relationship between IC and market performance of 64 IFIs while controlling for size and risk. Results indicate a significant positive relationship between value added intellectual coefficient (VAIC) and market performance based on Tobin's Q. The results further indicate a significant positive relationship between market performance and the variables, capital employed efficiency (CEE) and human capital efficiency (HCE), but no significant relationship with regards to structural capital efficiency (SCE). Both control variables viz. size and risk are found to be significantly related to market performance. The results suggest that the market captures the value added intellectual coefficient from both CEE and HCE.