An Investigation Into Board Structures, Intellectual Capital And Performance Of Banks In Africa

ABSTRACT

This study examines the relationships between board structures, intellectual capital and the performance of banks in Africa. Specifically, the study draws insights from the resource-based view and signalling theories to hypothesize that the relation of board structures to performance of banks is contingent on intellectual capital; that relationship between intellectual capital and performance of banks is non-linear; and that the disclosure of intellectual capital in corporate annual reports is dependent on intellectual capital performance. Using annual data of 366 banks from 26 African countries from 2007 to 2015; the study estimates; intellectual capital measures using the intellectual capital performance (Value Added Intellectual Coefficient) and intellectual capital disclosure score; growths in bank performance using net interest margin, risk-adjusted return on assets and insolvency risk; board structures using board size, board independence and board gender diversity. The system GMM and OLS-PCSE estimation strategies are used to estimate panel regressions.

The key findings of this study are as follows; there is a significant negative relationship between value added intellectual coefficient and board independence; value added intellectual coefficient also has a significant positive relationship with net interest margin and risk-adjusted return on assets. Furthermore, the interaction of board independence and value added intellectual coefficient, board size, and capital employed efficiency have significant positive influences on risk-adjusted return on assets and insolvency risk respectively. Thus, intellectual capital partly mediates and moderates the relationship between board structures and bank performance. The results of the non-linear models indicate that the relationship between net interest margin and insolvency risk on one hand and value added intellectual coefficient is non-linear, u-shaped and inverted u-shaped respectively. The study also indicates that there is a significant positive relationship between intellectual capital disclosures and value added intellectual coefficient.

The study’s findings provide evidence of the extent to which board structures have been instituted to support investments in intellectual capital as a means of improving the performance of banks in Africa. However, the relationship between intellectual capital and performance of banks can be non-linear in some dimensions; the relationships are not perennially linear. There is some evidence in this study to support the resource-based view and signalling theories in the context of Africa’s banking sector.