Cost, revenue, and profit efficiency characteristics, and intellectual capital in Indian Banks

Abstract

Purpose

The purpose of this paper is to estimate the economic (namely cost, revenue and profit) efficiency and its association with intellectual capital of 37 BSE-listed Indian banks over the period 2005–2018.

Design/methodology/approach

This study employs truncated Tobit regression to compute the relationship between intellectual capital and estimated cost, revenue and profit efficiency using Data Envelopment Analysis (DEA) for the 37 BSE-listed Indian banks within the panel data framework.

Findings

Estimates suggest that banks’ overall annual average cost, revenue and profit efficiency are 0.4466–0.7519, 0.4825–0.8773 and 0.4905–0.8803, respectively, during the sample period. Further, Tobit regression results indicate that the aggregate intellectual capital (value-added intellectual coefficient or Modified Value-added Intellectual Capital) has a positive but minimal impact on these efficiency parameters at 1 percent significance level for the overall sample as well as public sector banks. Among all the sub-components of intellectual capital, human capital, structural capital and relational capital have a positive and moderate impact on these efficiency measures for the overall sample. Control variables, particularly bank size, are significant drivers of the estimated efficiency of banks.

Research limitations/implications

Findings suggest that banks should invest adequately to enhance their overall intellectual capital to further augment these economic efficiency measures in the long run.

Originality/value

This study computes cost, revenue and profit efficiency of 37 BSE-listed banks based on DEA followed by intellectual capital using the Pulic approach (1998 and 2000) and the Bontis (1998) approach in the first stage. Later, it examines the dynamics between the computed efficiency parameters and intellectual capital using Tobit regression within the panel data framework.

Citation

Vidyarthi, H. and Tiwari, R. (2020), "Cost, revenue, and profit efficiency characteristics, and intellectual capital in Indian Banks", Journal of Intellectual Capital, Vol. 21 No. 1, pp. 1-22. https://doi.org/10.1108/JIC-05-2019-0107