Impact of intellectual capital on productivity of insurance companies in Ghana. A panel data analysis with System GMM estimation
| DOI | https://doi.org/10.1108/JIC-12-2018-0220 |
| Pages | 763-783 |
| Published date | 01 November 2019 |
| Date | 01 November 2019 |
| Author | Godfred Kesse Oppong,Jamini Kanta Pattanayak,Mohd. Irfan |
| Subject Matter | Information & knowledge management |
Impact of intellectual capital on
productivity of insurance
companies in Ghana
A panel data analysis with System
GMM estimation
Godfred Kesse Oppong, Jamini Kanta Pattanayak and Mohd. Irfan
Department of Management Studies, Indian School of Mines, Dhanbad, India
Abstract
Purpose –The purpose of this paper is to empirically investigate the effect of intellectual capital (IC)
efficiency on changes in the productivity of insurance companies in Ghana.
Design/methodology/approach –Using a panel of 33 insurance companies from 2008 to 2016, the study
applied Value Added Intellectual Coefficients model as a measure of IC efficiency, whilst Malmquist
Productivity Index is employed to capture changes in the productivity of insurance companies. In estimating
the effects of IC on productivity, System Generalised Method of Moment (GMM) is applied because of its
power over endogeneity and heteroscedasticity.
Findings –Robust empirical findings on productivity analysis showed that improvements in insurer’s
productivity were experienced in three year intervals out of the overall studied year. In addition, panel
regression results revealed that IC along with human capital and capital employed significantly affect the
productivity of insurance companies.
Research limitations/implications –The generalisability of the study findings could be questioned
because it is limited to insurance firms operating in Ghana; some firms were omitted due to mergers and
acquisition that reduced the final sample. Yet, the findings facilitate the validation of IC concept and, hence,
informs manager/policy makers on IC utilisation as a source of competitive edge.
Practical implications –Having robust empirical findings, the study expands on the existing literature by
unveiling the dynamic nature of IC relationship and productivity. The findings also serve as a benchmark
for managers/policymakers in insurance companies to increase the operational efficiency by investing in IC,
which will help guarantee improve returns on generated premiums.
Originality/value –Although a few studies have investigated the effect of ICin Ghana, this study is the first
to examine the dynamic relationship between IC and changes in productivity in a Ghanaian context.
Keywords Intellectual capital, Productivity, Insurance companies, System GMM
Paper type Research paper
1. Introduction
The increased attention on intellectual capital (IC) as a unique asset for value creation has
been fuelled by the resource-based view (RBV ). This approach views knowledge as a
strategic asset with the potential of being a source of competitive advantage for
organisations (Barney, 1991). The RBV as a basis for the competitive advantage of a firm
relies predominantly on the application of a bundle of valuable intangible resources at the
firm’s disposal (Penrose, 1959). Hence, an integrating all valuable intangible resources (IC)
and managing it towards the set strategic goals would benefit a firm (Zack, 1999). IC as
defined by Stewart (1997) is a set of intellectual materials, information, intellectual property,
knowledge and experience that can be managed to create wealth. Stewart (1997) also
classified IC as being composed of human capital, relational capital and structural
capital that are widely accepted in the existing literature (Erik Sveiby, 1997; Bontis, 2001;
Kamath, 2007).
To expound on the growing importance of IC, a plethora of research globally has
assessed the influential aspect of IC on an organisation’s performance. The preferred sector
for IC evaluation is in the service sector but studies are limited in the case of the insurance
Journal of Intellectual Capital
Vol. 20 No. 6, 2019
pp. 763-783
© Emerald PublishingLimited
1469-1930
DOI 10.1108/JIC-12-2018-0220
Received 18 December 2018
Revised 5 March 2019
29 July 2019
Accepted 29 August 2019
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1469-1930.htm
763
Productivity of
insurance
companies
industry (Asare et al., 2017). Moreover, these studies are conducted on advanced or
emerging economies with few if any done about the impact of IC on African economies.
Young (2012) stated that “Africa as a continent has been experiencing fast economic growth
over the past decade”. For example, Ghana’s economy relies on the swiftness of its financial
sector. For instance, a well-managed insurance industry can make long-term funds available
for the development of infrastructure for the country (Charumathi, 2012). Moreover, with the
introduction of oil and gas, the low penetration rate following the implementation of
liberalisation policies and new regulatory frameworks has attracted foreign investors to the
insurance sector. This is evident as shown by the rise in insurance premium from GHS
278,255,336 in 2008 to GHS 1,928,838,573 in 2016 as shown in Table I.
These figures show that the industry has transformed into a dynamic and competitive
industry where knowledge has becomes the key to performance. Thus, the growth and the
future of the insurance industry need to be hinged on IC, as insurance firms equipped with
IC tend to be more attractive and highly competitive than their competitors (Wu and
Strange, 2000). This brings to attention the need to assess IC performance in Ghana’s
insurance industry. Although a study by Asare et al. (2017) assessed the impact of IC on an
insurance firm’s profitability, there are still gaps to be filled as some flaws were revealed.
For instance, the study applied OLS-panel corrected standard errors (PCSE), an approach
that typically becomes inappropriate when the cross-sectional dimension is large compared
to the time dimension (Hoechle, 2007). Using the PCSE approach, the dynamic nature of
profitability cannot be explored. This happens because profit in the current period can be
influenced by the previous period as most earnings are retained (see Sinha and Sharma,
2015; Pervan et al., 2015).
Keeping this drawback in mind, the purpose of this study is to extend and advance IC
theory so as to understand the dynamism of IC efficiency and how it impacts the
productivity of insurance companies in a knowledge economy. To achieve this, we
examined IC of 33 insurance companies in Ghana; the data spanned a period of nine years
(2008–2016). This study differs from a previous study (Asare et al., 2017) in many ways.
First, it analysed the production efficiency of insurance companies by estimating changes in
productivity using the Malmquist Productivity Index (MPI). The information from this
analysis will be used to inform insurance companies’manager about the sources of
productivity, whether growth or decline. Second, with the application of a Value Added
Intellectual Coefficient (VAIC) method, the efficiency of IC is easily calculated as the method
uses the annual financial data of firms. Lastly, to unveil the dynamic influence of IC and
other controlled variables on productivity, a System Generalised Method of Moment (GMM)
estimator developed by Allerano and Bond (Bond et al., 2001) is applied. The application of
System GMM helps in controlling the unobserved individual heterogeneity, endogeneity
problem and Nickell bias and unleashes the dynamic production process of the insurance
Year Premium income (GHS) Growth rate (%)
2016 1,928,838,573 24
2015 1,560,679,185 26
2014 1,239,853,442 17.8
2013 1,052,090,981 23.6
2012 850,657,054 35.3
2011 628,528,775 37.2
2010 458,117,746 33.5
2009 342,973,719 23.0
2008 278,255,336 32.7
Source: NIC (2008, 2016)
Table I.
Total gross premium
income and growth
rate of non-life and
life (2008–2016)
764
JIC
20,6
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