Assignment 5

Research Methodology in Accounting September 13, 2009

(KAR5013) Research Methodology in Accounting Assignment 005 Part (I) 1.

Intellectual capital performance of commercial banks in Malaysia by Goh, P., (2005). Multimedia University, Melaka, Malaysia. Journal of Intellectual Capital, Vol. 6 No. 3, pp. 385-96. The aim of Mr. Goh’s paper is to measure the intellectual capital performance of commercial banks in Malaysia. Intellectual capital has become the key resource of value creation. This is especially true in a knowledge-driven economy, such as banking, where the value added of corporations, organizations and individuals is directly related to their knowledge and intellectual capital. Though physical capital is essential for banks to operate, it is the intellectual capital that determines the quality of services provided to customers. His research depends on three independent variables which are human capital; structural capital and capital employed efficiencies were obtained from annual reports. Mr. Goh found that all banks have relatively higher human capital efficiency than structural and capital efficiencies. Domestic banks were generally less efficient compared to foreign banks. Hong Leong Bank, Public Bank and Southern Bank were the top three efficient domestic banks based on VAICTM assessment, while Scotia Bank is the most efficient foreign bank. Public Bank and EON Bank have consistently showed improvement in efficiency in the three years. There were significant differences between rankings of bank according to efficiency and traditional accounting measures. In view of the findings that seven out of ten domestic banks did not show improvement in efficiency following the consolidation exercise requires an urgent attention and remedial actions. The knowledge and information that has been retrieved from the article justifies the importance of my project in several ways: •

The previous studies will increase my foundation to develop my comprehensive theoretical framework, which hypotheses, then, can be developed for testing.

•

To get benefit from the previous literature reviews and base on them my qualitative research. For example when the researcher mentioned that “there are very few studies on

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Research Methodology in Accounting September 13, 2009

intellectual capital performance in Malaysia” means there is need for more studies in this topic. •

To make sure whether my problem has already thoroughly researched or not. All new studies use the future research in previous studies or to develop them.

•

To know how others perceived the importance and the relevancy of my problem statement.

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To make sure that my final project and its problem has not been already thoroughly researched at my gap area. As a consequence, much time and effort will be saved.

1.

A study of determinants of intellectual capital performance in banks: the UK case by ElBannany, M., (2008). Liverpool Business School, Liverpool, UK. Journal of Intellectual Capital Vol. 9 No. 3, pp. 487-498. The purpose of Mr. El-Bannany’s paper is to investigate the determinants of intellectual capital performance in the UK banks over the period 1999-2005. Human capital, as an intellectual capital component, is one of the most important resources which companies rely on to improve their efficacy and efficiency, and hence gain a competitive advantage. He argued that access to information about the determinants of intellectual capital performance has provided insight into accounting for the knowledge assets-related parameter. Mr. El-Bannany’s study had six independent variables which are investment in IT systems, bank efficiency, barriers to entry, efficiency of investment in intellectual capital, bank profitability, and bank risk. His approach was, Multiple regression analysis is used to test the relationship between the intellectual capital performance as a dependent variable and certain independent variables. The results of El-Bannany's study indicate that the standard variables, bank profitability and bank risk, are important. The results also show that investment in information technology (IT) systems, bank efficiency, barriers to entry and efficiency of investment in intellectual capital variables, which have not been considered in previous studies, have a significant impact on intellectual capital performance. He argued that his study might help the banking regulators in addressing the factors affecting intellectual capital performance to take actions towards developing their performance and in turn maximize their value creation. The knowledge and information that has been retrieved from the article justifies the importance of my project in several ways:

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Research Methodology in Accounting September 13, 2009

•

To know all the important variables that have been found in the past having a significant impact on my problem.

•

To get benefit from these studies in developing my comprehensive framework and hypotheses. And to know the most suitable models that I can use to test my hypotheses.

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Ensuring that whether or not my problem is perceived by the scientific community as relevant and significant.

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To enhance the testability and reliability of the findings of my research.

Part (II) 1.

Intellectual capital performance of commercial banks in Malaysia by Goh, P., (2005). Multimedia University, Melaka, Malaysia. Journal of Intellectual Capital, Vol. 6 No. 3, pp. 385-96. 1) The study’s research questions •

Could Malaysia lose its competitiveness if it continues to depend solely on the production of labor-intensive goods and eventually?

•

Are firms now depending more on intellectual rather than physical capital?

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Is the intellectual capital that determines the quality of services provided to Customers?

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Research Methodology in Accounting September 13, 2009

•

Are there significant differences between rankings of bank according to efficiency and traditional accounting measures?

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How to measure intellectual capital performance by using The value added intellectual capital (VAIC) method?

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How the following variables and influence the measuring of intellectual capital performance? ○

Human capital efficiency,

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Structural capital efficiency,

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And capital employed efficiency.

1) Hypotheses •

There is a positive relationship between human capital efficiency and intellectual capital performance.

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There is a positive relationship between structural capital efficiency and intellectual capital performance.

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There is a positive relationship between capital employed efficiency and intellectual capital performance.

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There is a negative relationship between intellectual capital performance and intellectual capital disclosure.

1) The problems that their research study addresses •

The problem that this article addresses is measuring of the intellectual capital performance of commercial banks in Malaysia and how could it leading banks in order to determine the quality of services provided to customers. And what are the factors that influence of investigating the efficiencies of banks in utilizing their intellectual capitals.

1) •

Describe how the authors justified the need and importance of their study Research Objectives. The general objective of this study is to investigate the determinants of intellectual capital performance in the UK banks over the period 1999-2005. Specially, this study tries to explain how Human capital efficiency, Structural capital efficiency, and capital employed efficiency influences the degree of intellectual capital performance.

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Research Methodology in Accounting September 13, 2009

•

Significance of the study. The importance of this study can be perceived from the results indicate that: ○ In terms of efficiency in utilizing human capital, Hong Leong Bank topped the list with a HCE of 10.39, followed by Maybank (HCE of 7.88), Public Bank (HCE of 7.49) and Southern Bank (HCE of 6.63). A HCE of 10.39 means for every RM1 invested, Hong Leong Bank created RM10.39 from its human capital. When compared to domestic banks, foreign banks have higher levels of efficiency. The average VAICe for foreign banks was 9.25 while that for domestic banks was 7.11. ○

Based on the three years’ consecutive annual reports, the reader could assess the change in efficiency level over time. A falling trend of VAICe indicates that the bank is experiencing diminishing efficiency. For example, EON Bank and Public Bank have shown increasing trend of VAICe from the year 2001 to 2003, which indicated an improvement in efficiency levels in these two banks.

○

The study shows the trend of value added creation over three years. For example, except for Affin Bank and Ambank, all other domestic banks created more value in 2003 as compared to 2002. Hong Leong Bank has the largest increase in value added of about 50 per cent in 2003 (from RM1.2 billion in 2002 to RM1.8 billion in 2003).

What was important for you about the article? •

The important of this article is because the use The VAICe method used in this study was developed by Pulic (1997, 1998, 2001, 2002a, b). The variable of the article were clear and understood which are; human capital, structural capital and capital employed efficiencies. Moreover, no work has been done to empirically determine the intellectual capital performance of commercial banks in Palestine. Results support the view that says banks depend more on intellectual capital than structural capital.

How does it relate to your project? •

The article relate to my project problem in direct way because my topic is “Intellectual capital performance of commercial banks in Palestine”. Moreover the literature review was useful for my research that the article taking in accounts all the last studies which related to the same topic and will let me save more time and effort.

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Research Methodology in Accounting September 13, 2009

Strengths and weaknesses? Strengths: •

The variable of the article were clear, easy to understand, and it’s explained in systemic way.

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The results were highlighted through strong method, and it took enough space to present.

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Using the theoretical model to fill the gap between literature about the nature of the relation and its factors.

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The findings allowed banks to benchmark themselves based on the level of efficiency rankings, to establish priorities and develop strategic plans, which will in turn enhance their future performance.

Weaknesses •

The hypotheses of the study were not clear enough to understand and finding them was difficult.

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There are some important factors that have not been tested like investment in information technology (IT) systems, bank efficiency, barriers to entry and efficiency of investment in intellectual capital variables.

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The study failed to study all foreign banks operating in Malaysia.

What you liked and problems you noted? •

I liked the arrangement of data and the write of its essay make me enjoyed reading it.

•

I noted the lack of hypotheses views and difficult of finding them. The need of implementing of additional variables in the study.

What might you do differently if you were going to repeat that research? •

If I am going to repeat the same research, I would like to add some new factors to the current in the studies. In other words I will add a new variables which have not been considered in this study, and having a significant impact on intellectual capital performance.

How might it help you improve your research?

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Research Methodology in Accounting September 13, 2009

•

It would help to expand the research framework and to take into account all the related factors that influence nature of the relationship between variables and intellectual capital performance. Get benefits of design, methodology, approach of the study.

1.

A study of determinants of intellectual capital performance in banks: the UK case by ElBannany, M., (2008). Liverpool Business School, Liverpool, UK. Journal of Intellectual Capital Vol. 9 No. 3, pp. 487-498. 1) The study’s research questions •

Do human capitals play a crucial role in creating value through increasing efficiency?

•

Do intellectual capital is more important than physical capital in the process of wealth creation?

•

What are the factors that determine the intellectual capital performance in banks?

•

How to measure intellectual capital performance by using the value added intellectual capital (VAIC) method?

•

How the following variables and influence the measuring of intellectual capital performance? ○

investment in IT systems,

○

bank efficiency,

○

barriers to entry,

○

efficiency of investment in intellectual capital,

○

bank profitability,

○

and bank risk

1) Hypotheses •

There is a negative relationship between the levels of investment in information technology and intellectual capital performance.

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There is a positive relationship between bank’s relative efficiency and intellectual capital performance.

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There is a negative relationship between barriers to entry in a firm’s sector and intellectual capital performance. 7

Research Methodology in Accounting September 13, 2009

•

There is a positive relationship between the staff costs ratio and intellectual capital performance.

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There is a positive relationship between bank profitability and intellectual capital performance.

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There is a positive relationship between bank risk and intellectual capital performance.

3) The problems that their research study addresses •

The problem that this article addresses is the challenge of studying the determinants of intellectual capital performance. And the need of banks to improve their value creation by order formulate and implement strategies to develop intellectual capital and guide banks to benchmark themselves.

3) •

Describe how the authors justified the need and importance of their study Research Objectives. The general objective of this study is to measure the intellectual capital performance of commercial banks in Malaysia. Specially, this study tries to explain how investment in IT systems, bank efficiency, barriers to entry, efficiency of investment in intellectual capital, bank profitability, and bank risk influences the degree of intellectual capital performance.

•

Significance of the study. The importance of this study can be perceived from the results indicate that: ○

The log of a positive variable represented by investment in information technology systems (LOGITINit) is the best performing variable and as a result the study variables are as in the regression model.

○

Most of the variables have shown correct signs and are statistically significant and the regression model is significant and explains 85 per cent of the relationship between the intellectual capital performance and the independent variables and this indicates that the model is well specified.

○

The results indicate that investment in information technology (IT) systems, bank efficiency, barriers to entry and efficiency of investment in intellectual capital variables, which have not been considered in previous studies, have a significant impact on intellectual capital performance. 8

Research Methodology in Accounting September 13, 2009

What was important for you about the article? •

The important of this article is because the use the value added intellectual capital (VAIC) method explained by Public (1998). The hypotheses were very clear and easy to understand for future researches. This article is for investigate the determinants of intellectual capital performance in the UK banks over the period 1999-2005 and it was published in 2008, it make the data is fresh for me. Moreover, the results show that investment in information technology (IT) systems, bank efficiency, barriers to entry and efficiency of investment in intellectual capital variables, which have not been considered in previous studies, have a significant impact on intellectual capital performance. More evidence is needed on the determinants of intellectual capital performance before any generalization of the results can be made.

How does it relate to your project? •

The article related to my research in several ways, to help me to write correct hypotheses and address my topic problem. The article bring up others articles studies’ problem which is similar to my future problem. Moreover the article has evidence of new variables impact my topic research which have not been considered in previous studies.

Strengths and weaknesses? Strengths •

The variable and hypotheses of the study were clear, easy to understand, and it’s explained in systemic way.

•

The results were highlighted through strong method, and they presented by clearly way.

•

The study might help the banking regulators in addressing the factors affecting intellectual capital performance to take actions towards developing their performance and in turn maximize their value creation.

Weaknesses •

The empirical tests were conducted only on the Major British Banks Group over the period 1999-2005 and hence the results of the study cannot be assumed to extend beyond this group of banks or to different study periods.

•

Using six variables (seems more than enough) might affect the results of the study and make difficult to understand the gap of research.

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Research Methodology in Accounting September 13, 2009

What you liked and problems you noted? •

I liked the way of explaining the variable and hypotheses of the study. The arrangement of data and the write of its essay make me enjoyed reading it.

•

I noted that there is no literature review in the article, and structured of the paper was not in introduction section.

What might you do differently if you were going to repeat that research? •

If I am going to repeat the same research, I would like to increase the samples of the study and try to make generalization of the results after several studies on intellectual capital performance.

How might it help you improve your research? •

It would help to expand the research framework and to take into account all the related factors that influence nature of the relationship between variables and intellectual capital performance. Get benefits of design, methodology, approach of the study.

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