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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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.

• 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 El-

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

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

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

• 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?

○ Human capital efficiency,

○ Structural capital efficiency,

○ And capital employed efficiency.

1) Hypotheses

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

• 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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• 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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Strengths and weaknesses?

Strengths:

• The variable of the article were clear, easy to understand, and it’s explained in systemic
way.
• The results were highlighted through strong method, and it took enough space to present.
• Using the theoretical model to fill the gap between literature about the nature of the relation
and its factors.

• 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.
• 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.
• 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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• 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 El-

Bannany, 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.

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

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

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

• There is a positive relationship between bank profitability and intellectual capital

performance.

• 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.

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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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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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