Author(s): Hasan Subhi Hasan Hussein Alabass
The purpose of this study is to investigate whether intellectual capital plays a significant role in financial performance of banking sector in Iraq. We use value-added intellectual coefficient approach to measure the intellectual capital by aggregating the capital-employed efficiency, Human capital efficiency and structural capital efficiency. For financial performance, we use two proxies, return on assets and return on equity. Initially we regress two models, return on assets and return on equity, on value-added intellectual coefficient approach separately and then regress financial performance with each component of intellectual capital. Overall findings explain significant role of intellectual capital on the financial performance of banking sector in Iraq. Furthermore, intellectual capital components like capital-employed efficiency, Human capital efficiency and structural capital efficiency have a positive and significant relation with return on assets and return on equity, except structural capital efficiency which has no significant effect on return on equity. We also find impact of human capital efficiency much stronger on financial performance than the others components in the banking sector in Iraq.