DRIVERS OF VALUE CREATION IN THE BANKING SECTOR OF INDIA
Keywords:
Intellectual Capital, Value Creation Efficiency, Banking SectorAbstract
The banking sector is at the threshold of great developments which are likely to materialize in the coming years. As such, financial institutions need to upgrade and update themselves in order to maintain their competitive advantage. The measurement of value creation efficiency of firms will help them, not only to measure and assess their drivers of value creation but also to understand which variables require more attention so as to generate long-term benefits. The present paper modifies the Value Added Intellectual Coefficient Model (VAICTM) developed by Ante Pulic (1998) to measure the impact of intellectual capital (and its sub-components i.e. Human Capital, Structural Capital and Capital Employed) and value creation efficiency on firm’s profitability, productivity and market value. Three new components of Intellectual Capital i.e. Innovation Capital, Relational Capital and Social Capital are employed to assess value creation efficiency of 44 public and private sector banks of India. The required data are obtained from Prowess, a Centre for Monitoring Indian Economy (CMIE) database; and empirical analysis is done using linear regression to test the hypotheses.
The results indicate positive and significant relationships between the drivers of value creation and firm profitability, productivity and market valuation. Human Capital emerged as the most significant driver of value creation. The study will help both the academicians and practitioners in understanding the basis of value creation and intellectual capital in firms.
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