Intellectual capital and performance: testing interaction effects
| DOI | https://doi.org/10.1108/14691931011085687 |
| Published date | 19 October 2010 |
| Pages | 554-574 |
| Date | 19 October 2010 |
| Author | Nixon Kamukama,Augustine Ahiauzu,Joseph M. Ntayi |
| Subject Matter | Accounting & finance,HR & organizational behaviour,Information & knowledge management |
Intellectual capital and
performance: testing interaction
effects
Nixon Kamukama
Department of Accounting, Makerere University, Kampala, Uganda
Augustine Ahiauzu
Rivers State University of Science and Technology, Port Harcourt, Nigeria, and
Joseph M. Ntayi
Faculty of Computing and Management Science, Makerere University,
Kampala, Uganda
Abstract
Purpose – The purpose of this paper is to examine the interaction effect of intellectual capital
elements and how they fuse to affect financial performance in microfinance institutions. The major
purpose is to explore the appropriate blend or mix of intellectual capital elements that explains the
source of value creation – hence performance – in microfinance institutions.
Design/methodology/approach – The paper adopts the ModGraph program (Excel version) along
with the Kenny and Boran approach to test conditional hypotheses.
Findings – The magnitude effect of human capital on performance depends on any of structural or
relational capital; hence the assumption of nonadditivity is met. However, no significant interaction
effects were established between relational and structural capital.
Research limitations/implications – Only a single research methodological approach was
employed and future research through interviews could be undertaken to triangulate. Furthermore, the
findings from the present study are cross-sectional – futureresearch should be undertaken to examine
the multiplicative effects studied in this paper across time
Practical implications – In order to boost the wealth of microfinance institutions in Uganda,
managers should always endeavor to find a viable intellectual capital mix or blend that can add value
to the firm.
Originality/value – This is the first study that focuses on testing the interactive effects of
intellectual capital elements on financial performance in Ugandan microfinance institutions.
Keywords Intellectualcapital, Financial institutions, Social interaction,Financial performance,Uganda
Paper type Research paper
Introduction
The recent changes in the global economy, consisting of complex, dynamic and
competitive environment have led to a difference between the modern approach to
value creation and the traditional way of monitoring operations (Ting and Lean, 2009).
More so, Cuganesan (2006) observed that rapid technological changes, increasin gly
sophisticated customers and the importance of innovation shifted the bases of
competition for many businesses away from traditional physical and financial
resources to intellectual assets. Thus, there is wide spread recognition that intellectual
capital (a strategic resource) is critical force that drives business growth (Huang and
Liu, 2005).
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1469-1930.htm
JIC
11,4
554
Journal of Intellectual Capital
Vol. 11 No. 4, 2010
pp. 554-574
qEmerald Group Publishing Limited
1469-1930
DOI 10.1108/14691931011085687
One particular industry that is so competitive and dynamic is the microfinance
(CGAP, 2002; Adongo and Christopher, 2005). This industry is complex and highly
innovative (Kalyango, 2004), with great potential to expand the financial frontier to the
poor in a sustainable manner (Littlefield et al., 2003), and to a great extent dependent on
intellectual capital for a source of renewal (Sharabati et al., n.d.).
Much of the extant research on intellectual capital has focused on the developed
world – specifically within Scandinavian nations (Sharabati et al., n.d.). However, this
phenomenon has a global appeal because of its quest for solutions to the nations’
development challenge (CGAP, 2002). In addition, there is great interest in adva ncing
intellectual capital in developing countries, Uganda being the best choice because of:
.the adopted market-oriented and enterprise development approach by the
microfinance industry;
.the major reforms in the financial sector, including commercialization and
regulation of microfinance institutions’ (MFIs’) operations;
.quite a number of MFIs, which are more than 1,500 (AMFIU, 2009); and
.stiff competition that never existed before in the industry.
Microfinance industry represents part of financial sector set up to finance small and
micro-enterprises, which are excluded from the traditional banking practice (Labie,
2001; Ledgerwood, 1999; Kalyango, 2004; Megicks et al., 2005). Over the past decade
the industry has transformed into a large, dynamic private sector catering for the
financial needs of the low-income household and economically poor (Nanny onjo and
Nsubuga, 2004). Most firms in the industry have embraced a more business-oriented
outlook and maintaining their target groups of economically active poor while focusing
on achieving operational and financial sustainability (Kalyango, 2005; Baguma , 2008).
The Ugandan microfinance industry has therefore adopted market-oriented and
enterprise development approach after suspending a social-mission-oriented activity
that could no longer be undertaken on a commercial basis (Fernando, 2000). While
social orientation remains important, today a core group of microfinance service
providers considers microfinance as a commercial operation and operate on a
commercial basis. The commercialization has therefore made the industry more
competitive (Fernando, 2000). The microfinance industry has also reduced its
dependency on donor grants and concessional funding which have further threatened
performance of microfinance firms (Kalyango, 2004). The above challenges are serious
threats to performance of microfinance industry (Baguma, 2008).
As a result, microfinance industry has recognized that a sustainable solution to the
above challenges lies in building more efficient and strong financial institutions that
are capable of cultivating strategic assets that are firm specific. Ugandan microfinance
firms have realized that increased investment and management of assets that are
valuable, rare, and hard-to-imitate (Barney, 1991; Stiles and Kulvisaechana, 2004) is the
answer to the challenges faced (Baguma, 2008; Nannyonjo and Nsubuga, 2004). They
are assets which enhance the firm’s competitive advantage and superior performance,
which Stewart (1997) referred to as intellectual capital. This therefore provides a
fruitful setting for intellectual capital assessment in Ugandan microfinance industry.
The research setting for this particular study is unique because the concept of
intellectual capital has not been given serious attention in Uganda. The fact that the
study covered three predictor variables (HC, RC and SC) it was appropriate to test the
Intellectual
capital and
performance
555
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