The Intellectual Capital as a Measure of the Post-War Performance of Lebanese Banks

  • Anis El Khatib Middle East Airlines
  • Pierre Al-khoury Lebanese German University
Keywords: Lebanese banking sector, Intellectual capital, Value added intellectual coefficient (VAIC), Financial performance, Return on asset, Return on equity.


This is the first study to analyze the relationship between the Intellectual Capital (IC)  and financial performance of the Lebanese Banking Sector. The study covers a 15 years period after the end of the Lebanese civil war, that is from 1990 to 2004.The consolidated financial statements of the all banks are analyzed. The Intellectual Capital performance of banks is measured through the value added intellectual coefficient (VAIC) methodology as developed by Pulic in 1998 and 2002. ROE and ROA are used as indicators for the financial performance of banks. Regression models are developed and ANOVA test is applied. The results showed that SCE, HCE, and CEE had a high significant explanatory power of the variations in the VAIC, with a dominating effect of the  CEE. The results also showed a significant effect of the VAIC on performance as measured by ROA, and an insignificant effect on performance as measured by ROE. When the VAIC is divided into its components, it can be observed that the CEE has the most significant effect on banks performance measured by both ROA and ROE. Lebanese banks are encouraged to start using the IC and other performance measurement  systems (PMS’s), and not limiting their work only to financial measures to judge performance.


Author Biographies

Anis El Khatib, Middle East Airlines

Head of the Anti-Money Laundering Compliance Department, Middle East Airlines, Lebanon

Pierre Al-khoury, Lebanese German University
Vice President for Development


Abbas, F., Tahir, M., & Rahman, M. (2012). A Comparison of Financial Performance in the Banking Sector: Some Evidence From Pakistani Commercial Banks. Journal of Business Administration and Education, V.1, N.1, 1-14.

Aburime, U. (2009). Impact of Political Affiliation on Bank Profitability in Nigeria. African Journal of Accounting, Economics, Finance and Banking Research, Vol. 4 , No. 4, 61-75.

Ahangar, R. (2011). The Relationship Between Intellectual Capital and Financial Performance: An Empirical Investigation in an Iranian Company. African Journal of Business Management, 5(1), 88-95.

Ahmad,H.K., Raza, A., Amjad,W.W., & Akram, M. (2011). Financial Performance of Non Banking Companies in Pakistan. Interdisplinary Journal of Contemporary Research in Business, Vol. 2, No. 12, 732-744.

Alber,N., & Shaklab,R. (2016). The Impact of Intellectual Capital on the Performance of the Egyptian Banks. Electronic copy available at:

Alipour, M. (2012). The Effect of Intellectual Capital on Firm Performance: An Investigation on Iran Insurance Companies. Measuring Business Excellence, 16(1), 53-66.

Almazari, A. (2012). Financial Performance Analysis of the Jourdanian Arab Bank by Using the DuPont System of Financial Analysis. International Journal of Economics & Finance, Vol .4, No .4, 86-94.

Al-Musalli, M.A.K., & Ku Ismail, K.N.I. (2014). Intellectual Capital and its Effect on Financial Performance of Banks: Evidence from Saudi Arabia. Procedia - Social and Behavioral Sciences, Vol. 164, 201-207.

Alrafadi, K., & Md-Yusuf, M. (2013). Evaluating the Performance of Libyan Banks using Return on Investment. American Journal of Economics and Business Administration, 5(2), 84-88.

Amir,E., & Lev,B. . (1996). Value Relevance of Non-Financial Information: The Wireless Communications Industry. Journal of Accounting and Economics, 22(1-3), 3-30.

Angus-Leppan, P. (1997). Financial reporting in the pacific Asia region. Singapore: world scientific.

Arslan, M. & Zaman, R. (2014). Intellectual Capital and Its Impact on Financial Performance: A Study of Oil and Gas Sector of Pakistan. International Letters of Social and Humanistic Sciences, Vol. 43, 125-140.

Aspal, P.K. and Malhotra, N. (2013). Performance Appraisal of Indian Public Sector Banks. World Journal of Social Sciences, Vol. 3, 71-88.

Association of Banks in Lebanon -ABL-. (2013). The Lebanese Banking Sector: Pillar of Lebanon's stability. Beirut: ABL.

Athanasoglou,P.P., Brissimis,S.N. ,& Delis,M.D. (2008). Bank-Specific,Industry-Specific and Macroeconomic Determinants of Bank Profitability. International Financial Markets Institutions & Money, Vol. 18, 121-136.

Badreldin, A. (2009). Measuring the Performance of Islamic Banks by Adapting Conventional Ratios. Cairo: Working Paperr Series No. 16, German University Cairo - Faculty of Management Technology;.

Baz, F. (1993-2007). Bilanbanques 1993-2007. Beirut: Bankdata.

Beechey,J. & Garlick,D. (1999). Using the Balanced Scorecard in Banking. The Australian Banker, (133),28-30.

Belkaoui, A. (2003). Intellectual Capital and Firm Performance of US Multinational Firms: A Study of the Resource-Based and Stakeholders View. Journal of Intellectual Capital, Vol. 4, Issue 2, 215-226.

Bharathi, K. (2010). The Intellectual Capital Performance of Banking Sector in Pakistan. Pakistan Journal of Commerce & Social Sciences, 4(1), 84-99.

Bornemann,M., Knapp,A., Schneider,U., & Sixl,K.L. (1999). Holistic Measurement of Intellectual Capital. International Symposium: Measuring and Reporting Intellectual Capital; Experience, Issues, and Prospects. Amsterdam.

Brailsford,T., Heaney,R., & Bilson,C. (2004). Investments: Concepts and Applications (2nd ed.). Southbank, Victoria, Australia: Thomson.

Brennan,N., & Connell,B. (2000). Intellectual Capital: Current Issues and Policy Implications. Journal of Intellectual Capital, I(3), 206-240.

Chan, K.H. (2009). Impact of Intellectual Capital on Organizational Performance: An Empirical Study of Companies in the Hang Seng Index (part 1). The Learning Organization, Vol. 16, No.1, 4-21.

Chaudhary, K., & Sharma, M. (2011). Performance of Indian Public Sector Banks and Private Sector Banks: A Comparative Study. International Journal of Innovation, Management and Technology, Vol. 2, No. 3, 249-256.

Chen,M.C., Cheng,S.J., & Hwang,Y. (2005). An Imperical Investigation of the Relationship Between Intellectual Capital and Firm's Market Value and Financial Performance. Journal of Intellectual Capital, 6(2), 159-176.

Chen,Y.S., James Lin,M.J., & Chang,C.H. (2006). The Influence of Intellectual Capital on New Product Development Performance - The Manufacturing Companies of Taiwan as an Example. Total Quality Management and Business Excellence, 17(10), 1323-1339.

Chu,K.W.S., Chan,H.K., & Wu,W.W.Y. (2011). Charting Intellectual Capital Performance of the Gateway to China. Journal of Intellectual Capital, 12(2), 249-276.

Clarke, P. (1997). The Balanced Scorecard. Accountancy Ireland,29(6), 25-26.

Cohen,S., & Kaimenaski,N. (2007). Intellectual Capital and Corporate Performance in Knowlegde-Intensive SMEs. The Learnng Organization, 14(3), 241-262.

Corm, G. (1995). Reconstruction and Development Issues in Lebanon. Workshop on "Strategic Vision for the Middle East and North Africa. Gammarth, Tunisia: World Bank.

Darvish,H., Ahmadi,A., Kafashzadeh,A., Farid,S., & Nejatizadeh,N. (2013). Investigating the Effects of Intellectual Capital on Organizational Performance Measurement Through Organizational Learning Capabilities. Management Science Letters, 3(10), 165-172.

Dibeh, G. (2005). The Political Economy of Postwar Reconstruction in Lebanon. Helsinki: World Institute for Development Economic Research (WIDER).

Edvinsson,L., & Malone,M.S. (1997). Intellectual Capital. London: Piatkus Publishing.

Flamini,V., Mc Donald,C., & Schumaher,L. (2009). The Determinants of Commercial Bank Profitability in Sub-Saharan Africa. Washington DC: IMF African Department.

Gigante, G. (2013). Intellectual Capital and Bank Performance in Europe. Journal of Accounting and Finance Research, 2(4), 120-129.

Goh, P. (2005). Intellectual Capital Performance of Commercial Banks in Malaysia. Journal of Intellectual Capital, 6(3), 385-396.

Hemmer, T. (1996). On the Design and Choice of Modern Management Accounting Measures. Journal of Management Accounting Research, Vol. 8, 87-116.

Ikapel, O. (2016). Analysis of Intellectual Capital and Financial Performance of Commercial Banks in Kenya: An Application of Value Added Intellectual Coefficient (VAIC). International Journal of Research in Finance and Marketing (IJRFM), Vol .6, Issue 7, 1-15.

Isanzu, J. (2015). Impact of Intellectual Capital on Financial Performance of Banks in Tanzania. Journal of International Business Research and Marketing, Vol. 1, Issue 1, 16-23.

Isanzu, J. (2016). The Relationship Between Intellectual Capital and Financial Performance of Banks in Tanzania. Journal of Innovation and Sustainability, Vol. 7, No. 1, 28-38.

Ittner,C.D & Larcker, D.F. (2003). Coming Up Short on Nonfinancial Performance Measurment. Harvard Business Review, Nov. issue, 88-95.

Johnson,H.T.& Kaplan,R. (1987). Relevance Lost: The Rise and Fall of Management Accounting. Boston: Harvard Business School Press.

Jones, C. (2002). Investments: Analysis and Management (8th Edition). New York: Wiley & Sons.

Joshi,M., Cahill,D., Sidhu,J., & Kansal,M. (2013). Intellectual Capital and Financial Performance: An Evaluation of the Australian Financial Sector. Journal of Intellectual Capital, 14(2), 264-285.

Kalagnanam, S. (1997). The Use of Nonfinancial performance measures and their Relationship to Strategy. Wisconsin: University of Wisconsin.

Kaplan,R.S & Norton, D.P. (1996). The Balanced Scorecard: Translating Strategy into Action. Boston: Harvard Business School Press.

Kaplan,R.S & Norton, D.P. (2001). The Strayegy Focused Organization: How the Balanced Scorecard Companies Thrive in the New Business Environment. Bostons: Harvard Business School Press.

Khalique, M. (2012). Impact of Intellectual Capital on the Organizational Performance of Selected Small and Medium Enterprises in Malaysia and Pakistan. Ph.D Thesis, Universiti Malaysia Sarawak.

Khalique,M., Bontis,N., Abdul Nassir bin Shaari,J., Hassan Md. Isa,A., & Chase,R. (2015). Intellectual Capital in Small and Medium Enterprises in Pakistan. Journal of Intellectual Capital, Vol. 16, Issue 1, 224-238.

Khan,F.A., Khan,R., & Khan,M.A. (2012). Impact of Intellectual Capital on Financial Performance of Banks in Pakistan: Corporate Restructuring and its Effect on Employee Morale and Performance. International Journal of Business and Behavioral Sciences, 2(6), 22-30.

Kimball, R. (1998). Economic Profit and Performance Measurment in Banking. New England Economic Review, July/August, 35-53.

Lebanese Republic. (2002). Beyond Reconstruction and Recovery. Towards Sustainable Growth, A Request for International Support, Lebanon: Paris II Meeting. Beirut: Lebanese Republic.

Lev,B., & Sougiannis,T. (1996). The Capitalization, Amortization and Value-Relevance of R& D. Journal of Accounting and Economics, Vol. 21, Issue 1, 107-138.

Lipunga, A. (2015). Intellectual Capital Performance of the Commercial Banking Sector of Malawi. International Journal of Business and Management, Vol. 10, No. 1, 210-222.

Marshall, J. (2009). The Financial Crisis in the US: Key Events, Causes and Responses. Research Paper 09/34. House of Common Library.

Mezher, T. (1997, Aug.). Sustainable Development Strategies For Lebanon. Sustainable Development, Vol. 5 Issue 2, 55-64.

Mondal,A., & Ghosh,S. (2012). Intellectual Capital and Financial Performance of Indian Banks. Journal of Intellectual Capital, 13(4), 515-530.

McGowan, C., Stambaugh, A. & Sulong. (2011). Financial Analysis Of Bank Al Bilad. International Business & Economics Research Journal, Volunte 10, Number 3, 9-16.

Najibullah, S. (2005). An Emperical Investigation of the Relationship Between Intellectual Capital and Firms' Market Value and Financial Performance: In Context of Commercial Banks in Bangladish. Independent University, Bangladish.

Neaime, S. (2008). Twin Deficits in Lebanon: A Time Series Analysis: Series Lecture and Working Paper Series No. 2. Beirut: American University of Beirut.

Ongore, O. &. (2013). Determinants of Financial Performance of Commercial Banks in Kenya. International Journal of Economics and Financial Issues, Vol. 3, No. 1, 237-252.

Onyekwelu,U.L., Okoh, J.I., & Iyidiobi,F.C. (2017). Effect of Intellectual Capital on Financial Performance of Banks in Nigeria. European Journal of Accounting, Auditing and Finance Research, Vol. 5, No .2, 28-57.

Otuori, O. (2013). Influence of Exchange Rate Determinants on the Performance of Commercial Banks in Kenya. European Journal of Management Sciences and Economics, Vol. 1, No. 2, 86-98.

Ozkan,N., Cakan,S., & Kayacan,M. (2016). Intellectual Capital and Financial Performance: A Study of the Turkish Banking Sector. Borsa Istanbul Review, Vol. xx, 1-9.

Pablos, P. (2002). Evidence of Intellectual Capital Measurement From Asia, Europe and Middle East. Journal of Intellectual Capital, Vol. 3, Issue 3, 287-302.

Pedrini, M. (2007). Human Capital Convergences in Intellectual Capital and Sustainability Reports. Journal of Intellectual Capital, Vol.8, No.2, 346-366.

Pulic, A. (1997). The Physical and Intellectual Capital of Austrailian Banks. Retrieved in Nov. 2017 from:

Pulic, A. (1998). Measuring the Performance of Intellectual Potential in Knowledge Economy. In Paper Presented at the 2nd McMaster World Congress on Measuring and Managing Intellectua Capital by the Austrian Team for Intellectual Potential.

Pulic, A. (2002). Value Creation Efficiency of Croatian Banks 1996-2000. Retrieved in Vov. 2017 from:

Raza, A., Farhan, M., & Akram, M. (2011). A Comparison of Financial Performance in Investment Banking Sector in Pakistan. International Journal of Business and Social Science, Vol. 2, No. 9, 72-81.

Rehman,W., Rehman,C.A., Rehman,A., & Zahid,A. (2011). Intellectual Capital Performance and its Impact on Corporate Performance: An Empirical Evidence from Modaraba Sector of Pakistan. Australian Journal of Business and Management Research, 1(5), 08-16.

Roos, J., Roos, G., Dragonetti, N.C., & Edvinsson, L. (1997). Intellectual Capital: Navigating in the New Business Landscape. London: MacMillan Press.

Rustam, A., & Rashid, K. (2015). A Comparative Study of the Performance of Local and Foreign Banks in Pakistan: Some ANOVA Evidence. The IUP Journal of Bank Management, Vol. XIV, No. 1, 7-20.

Saengchan, S. (2008). The Role of Intellectual Capital in Creating Value in the Banking Industry. Retreived in Sept. 2017 fromhttp//

Shekhar,K., & Lekshmy,S. (2007). Banking Theory and Practice, 20th edition. New Delhi: VIKAS Publishing House.

Sofian,S., Abdul Rashid,S.Z., & Merhi,M. (2011). Conversation of Intellectual Capital and Relevance of Earnings. International Journal of Business and Social Science, Vol. 2, No. 10, 26-30.

Stankeviciene, J., & Mencaite, E. (2012). The Evaluation of Bank Performance Using a Multicriteria Decision Making Model: A Case Study on Lithuanian Commercial Banks. Technological and Economic Development of Economy, Vol. 18, Issue 1, 189-205.

Sveiby, K. (1997). The New Organisational Wealth: Managing and Measuring Knowledge-Based Assets. San Francisco, CA: Berrett-Koehler Publishers.

Sveiby, K. (2010). Models for Measuring Intangible Assets. Sveiby Knowledge Association Article , Retreived in Nov. 2017 from http.// www. Methods.htm.

Swartz,G., Swartz,N.P. & Firer,S. (2006). An Emperical Examination of the Value Relevance of Intellectual Capital Using the Ohlson (1995)Valuation Model. Meditari Accountancy Research, 14(2), 67-81.

Taskin, F. (2011). Factors Affecting The Performance of Commercial Banks in Turkey. Ege Academic Review, Faculty of Economics and Administrative Sciences, Ege University, Turkey, Vol. 11, No. 2, 289-298.

Teker, D., Teker, S., & Sönmez, M. (2011a). Economic Value Added Performances of Publicly Owned Banks: Evidence from Turkey. International Research Journal of Finance and Economics, Issue 75, 132-137.

Teker,S., Teker, D. & Kent, O. (2011b). Measuring Commercial Banks's Performance in Turkey: A Proposed Model. Journal of Applied Finance & Banking, Vol. 1, No.3, 97-112.

Ulum, I. (2009). Intellectual Capital: Concepts and Empirical Studies. Graha Ilmu Publications.

Ulum,I., Ghozali,I., & Chariri,A. (2008). Intellectual Capital and Corporate Financial Performance : An Analysis with Partial Least Squares Approach (PLS). Pontianak, Indonesia: In Simposium Nasional Akuntansi XI.

UNDP. (1997). Economic Development and Reconstruction. The Lebanese Economy Prior to 1975. In UNDP, Impact of The War on The Lebanese Economy. Evolution of The Lebanese Economy in The 1990's (pp. 1-19). UNDP.

Wong, W., Deng, Q., Tseng, M., Lee, L., & Hooy, C,. (2014). A Stochastic Setting to Bank Financial Performance for Refining Efficiency Estimates. Intelligent Systems in Accounting, Finance and Management, Vol. 21, Issue 4, 225-245.

Yalama,A., & Cookson,M. (2007). Intellectual Capital Performance of Quoted Banks on the Istanbul Stock Exchange Market. Journal of Intellectual Capital, 8(2), 256-271.

Zeghal,D., & Maaloul,A. (2010). Analysing Value Added as an Indicator of Intellectual Capital and its Consequences on Company Performance. Journal of Intellectual Capital, Vol. 11, Issue 1, 39-60 .

Zia ul haq,M., Sabir,H., Arshad,A., Sardar,A., & Latif,B. (2014). VAIC and Firm Performance: Banking Sector of Pakistan. Journal of Information and Knowledge Management, 3(4) 100-107.