Determining the Impact of Intangible Assets on Intellectual Capital and Competitive Advantage in Banking

Abstract

This paper carries out the empirical tests in order to validate the hypothesis that resource intangibility, in the form of intangible assets, contributes towards the intellectual capital, and the competitive advantage in the banking sector. Furthermore, it also determines whether the intangibility of a banks' resources contribute towards the sustainability of the competitive advantage. Finally, it determines which aspects of the banking performance, the intangible assets actually contribute to. In this context, this research utilizes the secondary data, which is extracted from the annual reports of commercial banks that are listed on the primary stock exchanges of Pakistan. The sample that is taken into consideration is divided into two main categories in order to carry out the analysis. These categories include the classification into the Islamic banks and the conventional banks. The Islamic window operations have not been included in the analysis, as the details required for the variable calculations are not consistently available. Moreover, this bifurcation in the sample is also a unique aspect of this research, as the prior literature primarily focuses on the determinants of the intellectual capital in the banking sector. However though, there is no direct study regarding the differences in the resource intangibility in the Islamic banks and the conventional banks, and their subsequent impact on the intellectual capital and competitive advantage. The time frame for the analysis is taken from the year FY2008-FY2018. Also, the findings of this study lead to striking implications for both the Islamic banking theory and the managerial practices in the banking sector of Pakistan. The resource intangibility is to be managed very differently across both categories. Where the intangible assets represent a significant contribution to both the intellectual capital and the competitive advantage for Islamic banks, they also represent a negligible impact on the intellectual capital, and the competitive advantage for conventional banks. This holds true for the conventional performance measures that are taken for the banking sector as well, as shown in the robustness analysis. Future studies may focus on additional countries to determine the consistency of these patterns. Furthermore, the additional explorations are possible, especially when considering this phenomenon. These include the impact of the bank size, the market position, and the country of location, etc.