Does intellectual capital matter to MFIs’ financial sustainability?
Purpose – This paper examines the effect of intellectual capital (IC) on the financial sustainability of microfinance institutions (MFIs). The study is motivated by the increased calls for MFIs to be self-sustainable and the growing importance of knowledge-based assets as contributors of competitive...
| Main Authors: | , , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Emerald Publishing
2023-01-01
|
| Series: | AJAR (Asian Journal of Accounting Research) |
| Subjects: | |
| Online Access: | https://www.emerald.com/insight/content/doi/10.1108/AJAR-06-2021-0080/full/pdf |
| _version_ | 1797792230951354368 |
|---|---|
| author | Peter Nderitu Githaiga Neddy Soi Kibet Koskei Buigut |
| author_facet | Peter Nderitu Githaiga Neddy Soi Kibet Koskei Buigut |
| author_sort | Peter Nderitu Githaiga |
| collection | DOAJ |
| description | Purpose – This paper examines the effect of intellectual capital (IC) on the financial sustainability of microfinance institutions (MFIs). The study is motivated by the increased calls for MFIs to be self-sustainable and the growing importance of knowledge-based assets as contributors of competitive advantage and sustained performance. Design/methodology/approach – With a global sample of 444 MFIs and data for 2013–2018, which yielded 2,664 MFIs-year observations, this study examines the effect of IC on MFIs’ financial sustainability. The data are extracted from the MIX Market database. Value added intellectual capital coefficients are used as proxy measures of IC. Operational self-sufficiency is used to measure financial sustainability. Data are analyzed using three-panel data estimation models: the fixed effect, the random effect and the dynamic panel system generalized method of moments. Findings – The results show that human capital efficiency and capital employed efficiency have a positive and significant effect on the financial sustainability of MFIs. However, structural capital efficiency has a significantly negative effect on financial sustainability. These results confirm the relative importance of both tangible and intangible assets as important positive contributors of financial sustainability of MFIs. Research limitations/implications – The paper focused on the association between IC and financial sustainability of MFIs. Therefore, examining nonfinancial institution may validate the contributions of this study. Practical implications – Based on the findings, MFIs’ managers are encouraged to leverage IC, physical and financial capital to attain financial sustainability. In particular, MFIs should invest in employees training and development. Additionally, owing to the positive relationship between physical capital and financial sustainability, there is need for policy interventions to ensure MFIs access adequate funding. The study further recommends mandatory disclosure of IC among MFIs. Originality/value – This is the first paper to investigate the relationship between IC and the financial sustainability of MFIs using panel data and a global sample of MFIs; therefore, it lays an empirical ground for future studies. |
| first_indexed | 2024-03-13T02:30:15Z |
| format | Article |
| id | doaj.art-7c5bdf0a3fc346ee9af5a0adf83ea112 |
| institution | Directory Open Access Journal |
| issn | 2443-4175 |
| language | English |
| last_indexed | 2024-03-13T02:30:15Z |
| publishDate | 2023-01-01 |
| publisher | Emerald Publishing |
| record_format | Article |
| series | AJAR (Asian Journal of Accounting Research) |
| spelling | doaj.art-7c5bdf0a3fc346ee9af5a0adf83ea1122023-06-29T19:28:44ZengEmerald PublishingAJAR (Asian Journal of Accounting Research)2443-41752023-01-0181415210.1108/AJAR-06-2021-0080Does intellectual capital matter to MFIs’ financial sustainability?Peter Nderitu Githaiga0Neddy Soi1Kibet Koskei Buigut2Department of Accounting and Finance, Moi University, Eldoret, KenyaDepartment of Accounting and Finance, Moi University, Eldoret, KenyaDepartment of Business and Management, University of Eldoret, Eldoret, KenyaPurpose – This paper examines the effect of intellectual capital (IC) on the financial sustainability of microfinance institutions (MFIs). The study is motivated by the increased calls for MFIs to be self-sustainable and the growing importance of knowledge-based assets as contributors of competitive advantage and sustained performance. Design/methodology/approach – With a global sample of 444 MFIs and data for 2013–2018, which yielded 2,664 MFIs-year observations, this study examines the effect of IC on MFIs’ financial sustainability. The data are extracted from the MIX Market database. Value added intellectual capital coefficients are used as proxy measures of IC. Operational self-sufficiency is used to measure financial sustainability. Data are analyzed using three-panel data estimation models: the fixed effect, the random effect and the dynamic panel system generalized method of moments. Findings – The results show that human capital efficiency and capital employed efficiency have a positive and significant effect on the financial sustainability of MFIs. However, structural capital efficiency has a significantly negative effect on financial sustainability. These results confirm the relative importance of both tangible and intangible assets as important positive contributors of financial sustainability of MFIs. Research limitations/implications – The paper focused on the association between IC and financial sustainability of MFIs. Therefore, examining nonfinancial institution may validate the contributions of this study. Practical implications – Based on the findings, MFIs’ managers are encouraged to leverage IC, physical and financial capital to attain financial sustainability. In particular, MFIs should invest in employees training and development. Additionally, owing to the positive relationship between physical capital and financial sustainability, there is need for policy interventions to ensure MFIs access adequate funding. The study further recommends mandatory disclosure of IC among MFIs. Originality/value – This is the first paper to investigate the relationship between IC and the financial sustainability of MFIs using panel data and a global sample of MFIs; therefore, it lays an empirical ground for future studies.https://www.emerald.com/insight/content/doi/10.1108/AJAR-06-2021-0080/full/pdfIntellectual capitalFinancial sustainabilityMicrofinance |
| spellingShingle | Peter Nderitu Githaiga Neddy Soi Kibet Koskei Buigut Does intellectual capital matter to MFIs’ financial sustainability? AJAR (Asian Journal of Accounting Research) Intellectual capital Financial sustainability Microfinance |
| title | Does intellectual capital matter to MFIs’ financial sustainability? |
| title_full | Does intellectual capital matter to MFIs’ financial sustainability? |
| title_fullStr | Does intellectual capital matter to MFIs’ financial sustainability? |
| title_full_unstemmed | Does intellectual capital matter to MFIs’ financial sustainability? |
| title_short | Does intellectual capital matter to MFIs’ financial sustainability? |
| title_sort | does intellectual capital matter to mfis financial sustainability |
| topic | Intellectual capital Financial sustainability Microfinance |
| url | https://www.emerald.com/insight/content/doi/10.1108/AJAR-06-2021-0080/full/pdf |
| work_keys_str_mv | AT peternderitugithaiga doesintellectualcapitalmattertomfisfinancialsustainability AT neddysoi doesintellectualcapitalmattertomfisfinancialsustainability AT kibetkoskeibuigut doesintellectualcapitalmattertomfisfinancialsustainability |