Proceedings of the 3rd European Conference on Intellectual Capital

Magdi El-Bannany
3. Research methodology (factors affecting intellectual capital performance,
hypo<strong>the</strong>sis, sample, research methods)
3.1 Factors affecting intellectual capital performance
In <strong>the</strong> intellectual capital performance in bank literature, many factors have been considered important
in affecting intellectual capital performance <strong>of</strong> <strong>the</strong>se <strong>the</strong> factors <strong>of</strong> investment in information
technology systems, bank pr<strong>of</strong>itability. The present study is investigating for <strong>the</strong> first time <strong>the</strong> affect <strong>of</strong>
<strong>the</strong> factors <strong>of</strong> earnings quality, bank age, listing age, inflation, foreign ownership; bank risk measured
by total reserves as a comprehensive bank risks indicator and bank size on intellectual capital
performance.
3.1.1 Earnings quality
Earnings quality can be linked to verifiability concept ‘which in accounting and earnings context’
means that if we asked two independent certified accountants (A and B) to calculate <strong>the</strong> amount <strong>of</strong>
earnings for a specific company during a certain period <strong>of</strong> time, <strong>the</strong>y should reach <strong>the</strong> same results
proving that <strong>the</strong>y applied <strong>the</strong> same set <strong>of</strong> accounting standards and here <strong>the</strong> human capital level
needed to reach achieve this target should be normal. But as argued by Aljifri (2007) <strong>the</strong> managers <strong>of</strong>
<strong>the</strong> companies might be interested in managing <strong>the</strong> earnings <strong>of</strong> <strong>the</strong>ir companies for reasons such as
earnings smoothing; reduce tax expenses; contractual perspectives; reduce political costs and
management changes and here <strong>the</strong> human capital level needed to reach this target should be up
normal.
No Name (2006, p.294) states that ‘Earnings quality is a multi-dimensional concept; <strong>the</strong>refore, <strong>the</strong>
choice <strong>of</strong> an earnings quality measure will depend on <strong>the</strong> research question posed (which dimension
<strong>of</strong> earnings quality is implied by <strong>the</strong> research question) and <strong>the</strong> availability <strong>of</strong> data and estimation
models (which measures can be estimated)’.
Different measures have been used in <strong>the</strong> literature to measure earnings quality and <strong>of</strong> <strong>the</strong>se accrual
quality can be seen more suitable for <strong>the</strong> present study because <strong>of</strong> its simplicity and help in sorting
out <strong>the</strong> problem <strong>of</strong> data availability associated with <strong>the</strong> more sophisticated measures [see for
instance, Kim and Qi (2010); Teitel and Machuga (2010); Ye, et. al. (2010) and Francis, et al.
(2006)].
Based on <strong>the</strong> above discussion, <strong>the</strong> first hypo<strong>the</strong>sis is;
H1: <strong>the</strong>re is a negative relationship between <strong>the</strong> earnings quality and intellectual capital performance.
3.1.2 Bank age
It has been argued that company age as a proxy for risk has an impact <strong>of</strong> <strong>the</strong> level <strong>of</strong> disclosure. That
is, potential investors will be more cautious in investing in younger ra<strong>the</strong>r than older ones because <strong>of</strong>
relative lack <strong>of</strong> <strong>the</strong> financial history <strong>of</strong> younger companies which in turn might have a negative impact
on predictable earning ability for <strong>the</strong>se companies [see for instance, White, et.al (2007) and Bukh, et.
al (2005)].
Therefore we should expect a negative relationship between <strong>the</strong> company age and its intellectual
disclosure level and as a result <strong>the</strong> need for more human capital ‘intellectual work’ to deal with this
issue will be less important in older compared to younger companies
Therefore, <strong>the</strong> second hypo<strong>the</strong>sis is;
H2: <strong>the</strong>re is a negative relationship between <strong>the</strong> age <strong>of</strong> <strong>the</strong> bank and intellectual capital performance.
3.1.3 Listing age
It has been argued that listing age as a proxy for risk has an impact <strong>of</strong> <strong>the</strong> level <strong>of</strong> disclosure. That is,
newly listed companies are more motivated than eldest listed ones to disclose information in <strong>the</strong>ir
annual reports to reduce <strong>the</strong> risk level and hence attract external fund to it [see for instance, , Barnes
and Walker, 2006; Garcia-Meca, et.al, 2005, Haniffa and Cooke, 2002 and Cook ,1989].
139