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Intellectual capital and financial performance: an evaluation of the Australian financial sector

Mahesh Joshi (School of Accounting, RMIT University, Melbourne, Australia)
Daryll Cahill (School of Accounting, RMIT University, Melbourne, Australia)
Jasvinder Sidhu (School of Accounting, RMIT University, Melbourne, Australia)
Monika Kansal (School of Accounting, Economics and Finance, Deakin University, Melbourne, Australia)

Journal of Intellectual Capital

ISSN: 1469-1930

Article publication date: 12 April 2013

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Abstract

Purpose

The purpose of this paper is to examine the intellectual capital (IC) performance of the Australian Financial Sector for the period 2006‐2008. It also aims to examine the relationship between IC performance and the financial performance of the financial sector.

Design/methodology/approach

The value added intellectual coefficient (VAIC) approach developed by Pulic is used to determine the IC performance of the Australian financial sector. The required data to calculate different constituents of IC was obtained from the annual reports of Australian Financial Sector companies.

Findings

The value creation capability of financial sector in Australia is highly influenced by human capital. About two thirds of the sample companies have very low levels of intellectual capital efficiency. The performance of various components of VAIC and overall VAIC differs across all subsectors in the financial sector. Investment companies have high value VAIC due to higher a level of human capital efficiency, as compared to banks, insurance companies, diversified financials and RIETs. Insurance companies are more focussed on physical capital rather than human and structural capital leading to lower VAIC.

Research limitations/implications

The paper analyses IC performance of only one sector of the Australian economy and there is a relatively narrow three‐year period for the data collection. However, a comparative analysis of various sub sectors in the Australian financial sector justifies the contributions made by this study.

Practical implications

The findings may serve as a useful input for financial institutions to apply knowledge management in their institutions and in addressing the factors affecting IC performance in order to maximise their value creation. It will also help the management of companies in other sectors, especially those in knowledge‐based industries, in understanding the contributions of various components of intellectual capital in their growth.

Originality/value

This is the first paper that examines the relationship of intellectual capital performance with financial performance of financial sector companies in Australia.

Keywords

Citation

Joshi, M., Cahill, D., Sidhu, J. and Kansal, M. (2013), "Intellectual capital and financial performance: an evaluation of the Australian financial sector", Journal of Intellectual Capital, Vol. 14 No. 2, pp. 264-285. https://doi.org/10.1108/14691931311323887

Publisher

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Emerald Group Publishing Limited

Copyright © 2013, Emerald Group Publishing Limited

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