Intellectual capital and performance within the banking sector of Luxembourg and Belgium
| DOI | https://doi.org/10.1108/14691931311323896 |
| Pages | 286-309 |
| Date | 12 April 2013 |
| Published date | 12 April 2013 |
| Author | Anne‐Laure Mention,Nick Bontis |
| Subject Matter | Accounting & finance,HR & organizational behaviour,Information & knowledge management |
Intellectual capital and
performance within the banking
sector of Luxembourg
and Belgium
Anne-Laure Mention
Innovation Economics and Service Valuation Unit,
Public Research Centre Henri Tudor, Luxembourg City, Luxembourg, and
Nick Bontis
DeGroote School of Business, McMaster University, Hamilton, Canada
Abstract
Purpose – Intellectual capital is widely acknowledged as the most critical resource of modern
organizations. Nevertheless, empirical evidence on its actual contribution to the dynamics of the value
creation process remains scarce, especially within certain sectors and geographic regions. The purp ose
of this paper is to address this gap by investigating the effects of intellectual capital and its
components on business performance in banking institutions within Luxembourg and Belgium.
Design/methodology/approach – This empirical research is conducted using a dedicated survey
instrument administered to over 200 banks. Data analysis is achieved through structural equation
modeling.
Findings – Results indicate that human capital contributes both directly and indirectly to
business performance in the banking sector. Structural and relational capital are positively related
to business performance, though results are not statistically significant. Surprisingly, relational capital
has been evidenced to negatively moderate the effect of structural capital on perfor mance.
Research limitations/implications – Traditional limitations of a cross-sectional study apply with
respect to the attribution of causality and the time lag effects.
Practical implications – A set of reliable items to capture intellectual capital has been identified and
represents actionable knowledge for implementing an intellectual capital dashboard in banks. The
dominant role of human capital also provides insight to managers with respect to business
performance levers.
Originality/value – Disentangling the effects of intellectual capital on business performance is of the
utmost importance in service firms, as they are heavily reliant on intangible resources and capabilities.
This research contributes to develop current understanding of these effects. Moreover, interaction
effects between human, structural and relational capital have also been uncovered, thus extending
prior knowledge on these complex relationships.
Keywords Intellectual capital, Business performance, Services, Banking, Innovation, Luxembourg,
Belgium
Paper type Research p aper
Introduction
Intellectual capital (IC) is widely acknowledged as the most imp ortant source of value
creation and competitive advantage (Drucker, 1993; Grant, 1996). However, empirical
evidence on its contribution to firm performance remains scarce in cer tain sectors and
geographical regions. A plausible explanation resides in the measurement problems
associated with constructs that are not directly observable and identifiable despite
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1469-1930.htm
Received 24 October 2012
Accepted 25 October 2012
Journal of Intellectual Capital
Vol. 14 No. 2, 2013
pp. 286-309
rEmeraldGroup PublishingLimited
1469-1930
DOI 10.1108/14691931311323896 The authors would like to acknowledge and thank the 213 banks that participated in this study.
286
JIC
14,2
being the most theoretically interesting (Spender and Grant, 1996). This study
precisely addresses this gap by empirically scrutinizing the interrelationships as well
as the interaction effects between IC components and business performance in banks
within Luxembourg and Belgium, which represent a major component of the service
industry of that region.
The academic field of IC has grown by leaps and boun ds (Serenko and Bontis, 2009;
Bontis and Serenko, 2009a; Serenko et al., 2010). Research on the relationship
between IC and performance has focussed on various industries including
biotechnology (Hermans and Kauranen, 2005) and manufacturing (Tseng and Goo,
2005; Wang and Chang, 2005). Though these sectors certainly deserve further
investigation, it is striking that service industries in general and banks in particular
represent a fervent research setting as well. First, service industries now include an
increasingly larger proportion of productive activities in developed economies
(e.g. they now account for over 70 percent of value added in the OECD area). In 2009,
business activities and financial services represented about 30 percent of gross
value added in the EU-27 (Eurostat). Second, the intrinsic characteristics of services
(i.e. co-production, heterogeneity, intangibility, perishability and simultaneity;
Fitzsimmons and Fitzsimmons, 2000) imply that IC holds a prevailing role. The
extent of IC reliance may vary according to the degree of contact between the service
provider and the consumer and to the intensity of knowledge mobilized in the
underlying operations. Banks qualify as knowledge-intensive firms as most of their
activities are assimilated to work of an intellectual nature. Well educated, qualified
and continuously trained employees form the majority of the workforce (Alvesson,
2000). Banking operations usually involve close interaction with customers and rely,to
a great extent, on the integration of information and communication tec hnologies
(ICTs) for the development of new products and services.
Service firms thus represent fertile ground for und erstanding the relationship
between IC and performance. So far, few studies have concentrated on IC, or some of its
components, in financial firms (Bontis et al., 2002; Bontis and Fitz-Enz, 2002; Bontis
and Serenko, 2009b). Bontis and his colleagues also explored the mediating effect of
organizational reputation on the customer loyalty of a bank (Bontis et al., 2007).
Ordonez de Pablos (2004) shed some light on relational capital (RC) in banks. Such
efforts undoubtedly contribute to the overall understanding of the effects of IC on
performance. Yet, they specifically focus on a selected component of IC. Besides suc h
fragmented research, Cabrita and Bontis (2008) investigated the interrelationships and
interaction effects among IC components and performance in the Portuguese banking
sector. Their test for interaction effects expanded prior research, conducted in
other industries (Bollen et al., 2005; Bontis, 1998; Bontis et al., 2000; Tsan and Chang,
2005) but failed to provide convincing evidence. This study contributes to this research
stream and responds to the call for model development and refinement (Cabrita and
Bontis, 2008).
Much of the extant research on IC has focussed on nations with a strong tradition
of knowledge intensity such as Sweden, Canada, Finland and Australia (Choo and
Bontis, 2002). However, this phenomenon has global appeal as evidenced in studies
within Mexico (Trevinyo-Rodriguez and Bontis, 2007), Portugal (Cabrita et al., 2007;
Cabrita and Bontis, 2008), Ireland (O’Regan et al., 2001, 2005), Germany (Kristandl
and Bontis, 2007), Australia (Bontis and Girardi, 2000), Malaysia (Bontis et al., 2000),
Egypt (Seleim et al., 2004, 2007), Jordan (Sharabati et al., 2010) and others. Some
researchers (Bontis, 2004; Malhotra, 2001) point out that there is also great interest in
287
Banking sector
of Luxembourg
and Belgium
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