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Corporate board structures and Board

structures and
intellectual capital: evidence from intellectual
capital
banks in Africa
Nicholas Asare
Department of Accounting, University of Ghana Business School, Accra, Ghana and
Department of Accounting and Finance, School of Business, Received 25 June 2020
Revised 1 October 2020
Kwame Nkrumah University of Science and Technology, Kumasi, Ghana, and Accepted 14 October 2020

Francis Aboagye-Otchere and Joseph Mensah Onumah

Department of Accounting, University of Ghana Business School, Accra, Ghana
Abstract
Purpose – This study examines the nature of the relationship between board structures (BSs) and intellectual
capital (IC) of banks in Africa.
Design/methodology/approach – Using annual data from financial statements of 366 banks from 26 African
countries from 2007 to 2015, the study estimates IC using the value-added intellectual coefficient (VAIC) and BSs
using board size, board independence and board gender diversity. The system generalized method of moments
and panel-corrected standard error estimation strategies are used to estimate panel regressions.
Findings – There is a significant negative relationship between board independence and intellectual capital.
The results also indicate that the IC of banks does not depend on board size and board gender diversity.
Practical implications – The study’s findings provide evidence of the extent to which BSs have been
instituted to support investments in intellectual capital as a means of improving the performance of banks in
Africa.
Originality/value – This study provides some empirical evidence from Africa’s banking sector to justify that
banks with better IC have boards that are less independent. This study is one of the few studies that employs
many countries’ data.
Keywords Corporate governance, Intellectual capital, Board structures, Banks, Africa
Paper type Research paper

1. Introduction
Good corporate governance (CG) and intellectual capital (IC) have been progressively
documented as some of the main drivers of economic growth and development in contemporary
times. As argued by Kaplan and Norton (2004), some high natural resource-endowed countries,
such as Saudi Arabia and Venezuela as at then, made poor investments in their CG and IC.
Consequently, they experienced many sluggish growths as their output per person was far less
than countries like Taiwan and Singapore that had limited natural resources but invested
profoundly in CG and IC (Kaplan and Norton, 2004). This argument could be juxtaposed to
many African countries which have relatively lower investments in CG and IC.
The specific CG structures in the financial sector of an economy have substantial effects
on the allocation of resources in the sector and the economy at large. At the firm level, one

© Nicholas Asare, Francis Aboagye-Otchere and Joseph Mensah Onumah. Published in Asian Journal
of Economics and Banking. Published by Emerald Publishing Limited. This article is published under
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Asian Journal of Economics and
The authors thank Gifty Asare of the University of Professional Studies Accra, Ghana and Audrey Banking
Gyamfi of Text Next Ltd for proof reading earlier versions of this paper. The authors bear the Emerald Publishing Limited
2615-9821
responsibility for any shortcomings. DOI 10.1108/AJEB-06-2020-0020
AJEB important detail of CG is the responsibilities and nature of the directors on corporate boards
(Abor and Fiador, 2013). For instance, the size of a corporate board is relevant; and in line with
the resource-based view theory, boards that are large, in most instances include a number of
persons with diverse expertise, assorted educational backgrounds, abilities and skills that
boost boards’ proficiencies (Al-Musalli and Ismail, 2012). It is also recognized that the
effectiveness of the board can be connected to the complementarity of non-executive and
executive directors, gender of the directors (male and female), amongst others (Pearce and
Zhara, 1992; Fama and Jensen, 1983). Overall, well-governed firms are likely to have higher
performance in the financial sector (Kyereboah-Coleman and Biekpe, 2006).
In that regard, a firm’s board of directors influence the nature of its IC investments and
performance. At present, there is little agreement, if any, concerning the nature and strength
of the relationship between CG structures and IC; and it is clear that this issue is a fruitful area
of inquiry. For instance, the literature on the consequence of board structures (BSs) as an
aspect of CG structures on firms’ IC in the economic environment is inconclusive even though
there is prevalent belief that good CG practices lead to superior IC (e.g. Nkundabanyanga,
2016; Al-Musalli and Ismail, 2012; Li et al., 2008; Cerbioni and Parbonetti, 2007; Swartz and
Firer, 2005). Li et al. (2012) and Hidalgo et al. (2011) have mixed findings on the nature of the
same relationship.
Africa as a veritable area for research has emerging banking markets that can help
understand the nature of these relationships. The effects of BSs on IC could thus underlie the
growth and development of the banking sector and thereby improve the efficiency of the
African economy. The literature on CG in Africa is not too comprehensive (Aboagye and
Otieku, 2010). Most empirical studies on CG and IC of firms have concentrated on non-African
firms (Abor and Fiador, 2013; Asare et al., 2013, 2020; Wagiciengo and Belal, 2012; Kamath,
2008). Considering that CG and institutions in most countries and regions function
differently, it is imperative to also appreciate other perspectives of the issues from Africa
(Duho, 2020; Abor and Fiador, 2013) though the literature on the particular relationship
between BSs and IC even in developed countries appears to be scanty. Besides, this study is
the first to combine bank data from many countries to understand issues of IC in the banking
sector. This study is different from previous studies that concentrated on relatively small
sample sizes in sectors other than the banking sector.
Makki et al. (2008) and Kalim and Lodhi (2002) using Pakistan as a case in point cautioned
developing economies to initiate drastic steps to make their banking sectors extra IC
resourceful; if not, they may drop even their current share of global exports. The banking
sectors in most developing economies are perceived to be relatively characterized by low
levels of competition and inefficiencies reflecting in high banking transactions and services
costs. As a result, improving the banking sector’s competitiveness, efficiency and
performance in Africa necessitates actual empirical understanding about the effects of BSs
on IC. The results of the study indicate that there is a significant negative relationship
between IC and board independence. For banks to have better IC, their boards should be
dominated by executive directors. The results also indicate that the IC of banks does not
strongly depend on board size and board gender diversity. Larger bank boards or higher
gender-diverse bank boards do not necessarily affect the IC of banks.
The remainder of this paper is structured in this manner. The following section provides a
literature review on CG and IC. The section three is on data and methods. Empirical results
are presented in section four with conclusions given in the last section.

2. Review of literature
Management of firms formulates policies and strategies to acquire, deploy and account for
resources in the interest of their stakeholders (Asare, 2018). The ability to adhere to pre-
determined guidelines in CG has implications for IC management and accounting. Firms need Board
to know what their competitive advantages are and what competencies they need to cultivate structures and
to preserve these advantages (Marr et al., 2004). Competencies are supported by knowledge;
firms that seek to develop their competencies need to identify and manage their intangible
intellectual
assets, i.e. IC (Marr et al., 2004). These assets have been noted to contribute to firm capital
performance and allow for accretion of wealth (Duho, 2020) in line with the resource-
based view.
In keeping with the resource-based view, an imperative function of a corporate board is the
provision of resources and is directly linked to firm performance (Al-Musalli and Ismail, 2012;
Pfeffer, 1972). The corporate BSs tend to affect the resourcefulness of bank boards in
discharging their legitimate duties. The size of a corporate board is important and larger
boards in most instances include a number of individuals with diverse expertise, assorted
educational and professional backgrounds, abilities and skills that boost boards’
proficiencies (Kusi et al., 2018; Al-Musalli and Ismail, 2012). The largeness of a bank
board’s size in that regard will positively increase the financial performance of the bank. Also,
the variety that comes with board diversity, such as the different expertise and managerial
backgrounds, personalities, learning styles, gender, ages, race, education, values etc.
(Williams, 2000), is likely to result in the efficient management of IC and performance.
The resource-based view perspective thus offers insights into how attaining control of
critical IC resources delivers better bank performance, and how developing resource
interdependencies around critical resources affect the performance derived from them (Asare
et al., 2020; Nkundabanyanga, 2016). Studies find positive relations between BSs as a
component of CG and IC (see Daryaee et al.,2011; Li et al., 2008; Cerbioni and Parbonetti, 2007;
Swartz and Firer, 2005). Makki and Lodhi (2009) also reveal and determine the existence of a
critical structural relationship between CG and IC. BSs are critical to decisions concerning
resources, including IC. Specifically, Habib (2015) finds a positive relationship between the
number of directors, i.e. board size and effective monitoring of managerial behaviour, which
contributes to improvement in financial performance. Williams et al. (2005) maintain that a
bigger board size has more specialized skills and is better equipped to monitor management.
Moreover, it is maintained that larger boards are more likely to increase firms’ ability to
obtain and secure critical resources from their environment, such as IC (Abeysekera, 2010),
thus supporting improved relational capital in the firms’ dealings with stakeholders. More
explicitly, Al-Musalli and Ismail (2012) and Joshi et al. (2010) find that board size has no
significant relationship with IC of banks in Arab Gulf Cooperation Council regions and
Australian owned banks. Based on these mixed findings, the current study also seeks to
understand the nature of the same relationship using many countries and several banks’
data. This may offer robust findings on the relationship between the variables.
Additionally, a corporate board is seen to be more independent if it has more non-
executive directors (John and Senbet, 1998). It is commonly acknowledged that the effective
performance of the board depends on having the right proportion of executive and non-
executive directors on the board (Pearce and Zhara, 1992; Fama and Jensen, 1983). Theory
submits that non-executive directors often have less information about the business of the
firm and have difficulty understanding the complexities of the firm (Weir and Laing, 2000). It
can be argued that, executive directors are more familiar with the activities of the firm and are
therefore in a better position to monitor top management. In contrast, a high proportion of
outside directors on a board provide healthier settings for making quality shared decisions
(Kusi et al., 2018; Fama and Jensen, 1983). Hermalin and Weisbach (2003) put forward that
there is little to suggest that board composition has any cross-sectional relation with firm
value. In other words, boards that have independent non-executive directors are stronger in
monitoring and evaluation, and this can improve IC. Nonetheless, the extent to which this
could reflect in banks’ IC is not clear in the literature. Al-Musalli and Ismail (2012) and
AJEB Mujtaba and Williams (2011)’s findings show that the number of independent directors on
firm boards have a significant negative relationship with IC.
Also, the diversity of corporate boards is a topical issue in CG. It has been looked at from
several perspectives such as gender, ethnicity and professional background in many areas of
management research (Asare, 2018). Prior literature on gender diversity in teams of decision-
makers indicates that diversity could either improve the quality of decisions by bringing in
new viewpoints and enriching the information set accessible to the team or could obstruct
effective team performance by increasing disagreement and conflicts (Boone and Hendriks,
2009; Mannix and Neale, 2005). Kyereboah-Coleman (2006) finds that board diversity through
the inclusion of women is important for the enhanced performance of firms. Kusi et al. (2018)
find similar results as Kyereboah-Coleman (2006) and thus clearly illustrate that gender-
diverse boards are likely to be resourceful in decision-making. In addition, Swartz and Firer’s
(2005) empirical results indicated a positive significant relationship between the percentage
of ethnic members on a firm’s board and IC. Swartz and Firer (2005) did not consider gender
diversity of the boards of the firms used in their study. Based on the limited literature and the
resource-based view, more diverse bank boards are likely to have higher IC performance.
On the basis of the literature reviewed, this study hypothesizes that:
H1. Board size has a positive relationship with IC.
H2. Board independence has a positive relationship with IC.
H3. Board gender diversity has a positive relationship with IC.

3. Methods and data

The data from the unconsolidated financial statements of banks were sourced from the
Bankscope database in August 2018; data covers financial statements, from 2007 to 2015 of
banks in various countries in Africa (see Appendix 1; Asare, 2018). The sample includes
commercial, development, mortgage, savings and co-operative banks. Country-specific data
on macroeconomic variables and governance were also obtained from the Global Financial
Development Database (GFDD) of the World Bank and the World Development Indicators
(WDIs) database (2016). The number of banks sampled, and the time interval used for the
study were partly restricted by the availability of data and the authors’ desire to contribute to
the extant literature using a panel data approach. The variables measured and used in this
study are enshrined and expatiated in Table 1.

3.1 Specification of the model and estimation strategies

Panel regression model (equation 1) is specified to assess the nature of the relationship
between BSs and IC. It follows arguments put forward by Valverde and Fernandez (2017) that
banks maximize wealth by considering both opening and end-of-period information and that
previous values of the value-added intellectual coefficient (VAIC) may affect present values.
VAICit ¼ λ0 þ λ1 VAICit−1 þ λ2 BODSIZEit þ λ3 BODINDit þ λ4 BODGENit þ λ5 BSIZEit
þ λ6 CRL5it þ λ7 GDPit þ εit (1)

where, VAI C it is the value-added intellectual coefficient, an IC measure of a bank i in the time
t; VAI C it−1 is one period lagged observations of the respective variables of a bank. BODSIZE
is the board size of bank i in time t; BODIND is board independence of bank I in time t;
BODGEN is board gender diversity of bank i in time t; BSIZE is bank size of bank I in time t;
CRL5 is 5 bank loan concentration ratio of the industry in time t; GDP is the gross domestic
 Operational definition and
Board
Variable Acronym sources Pointer Data source structures and
intellectual
Intellectual capital IC This study adopts the value- Value creation Bank annual
(VAICTM) added intellectual coefficient performance financial report – capital
– (VAIC ) as proposed by
TM a
Computations from
Pulic (2004, 2008) to measure Bankscope
IC of the selected banks. The
VAIC has been widely used
in the literature to measure
IC (Chen et al., 2014; Goh,
2005). Further details on its
computations is in
Appendix 3 of this study
Board size BODSIZE The number of directors Good corporate Bank annual
who serve on the board of a Governance financial report –
bank (Abeysekera, 2010; Computations from
Naimi et al., 2010) Bankscope
Board BODIND The proportion of Good corporate Bank annual
independence/ independent non-executive Governance financial report –
Composition directors on the board; that Computations from
is, the number of Bankscope
independent non-executive
directors to the total number
of directors on the board
(Kusi et al., 2018; Duru et al.,
2016)
Board diversity BODGEN The proportion of directors Good corporate Bank annual
on the board that is female; Governance financial report –
that is, the number of female Computations from
directors to the total number Bankscope
of directors on the board (see
Kusi et al., 2018; Duru et al.,
2016)
Bank size BSIZE A natural logarithm of the Size Bank annual
bank’s fiscal year-end total financial report –
assets (Asare et al., 2017; Al- Computations from
Ghanem and Hegazy, 2011) Bankscope
Banking market CLR5 The ratio of the total loan Market Bank annual
structure assets of the five largest concentration financial report –
banks to total industry loan Computations from
assets (Alhassan and Asare, Bankscope
2016; Al-Musalli and Ismail,
2012)
Gross domestic GDPpcg GDP per capita growth is Macroeconomic World development
product per capita incorporated as justification stability indicators–database
growth rate for differences in published by World
macroeconomic bank
environments of the
countries (Asare, 2018).
Growth rate of real GDP per
capita
Note(s): aGreater value for the VAIC demonstrates a grander efficiency of the firms’ resources in generating Table 1.
value (Pulic, 2008) Summary of the
Source(s): Authors’ estimation, 201 definitions of variables
AJEB product per capita growth rate of a country in time t; λ is the coefficient while εit is the
error term.
The basic models of this study are first estimated with the ordinary least squares (OLS)-
panel corrected standard errors (PCSEs) (see also Owusu et al., 2017). In justifying the
application of the OLS-PCSE, the Wooldridge (2003) test of no first-order autocorrelation and
Breusch-Pagan/Cook-Weisberg test are used to confirm the presence of serial correlation and
heteroscedasticity (Bailey and Katz, 2011). The study employs the dynamic panel approach
as the main estimation technique to deal with the shortcomings of the OLS-PCSE. The
approach offers benefits over OLS and develops on prior efforts to examine the associations
between CG and IC. The study uses the generalized methods of moments (GMM) estimator as
propounded and developed by Arellano and Bover (1995) and Blundell and Bond (1998) for
dynamic panel data. Owusu et al. (2017) and Wintoki et al. (2012) agree that the GMM
estimator can effectually deal with the problem of unobserved heterogeneity. It permits for a
dynamic relation of the dependent variable while also adjusting for endogeneity biases.

4. The analysis of results

4.1 Descriptive statistics
Table 2 shows the yearly averages of IC, i.e. VAIC. It can be realized that, the average VAIC of
the banks is 2.3483. The average VAIC has decreased over the period (2.2844 in 2007 to 2.1658
in 2015). Kruskal–Wallis test undertaken to determine whether there are differences between
the means of the VAIC over the years indicates a VAIC which is not statistically different
across the years. The results demonstrate that the mean VAIC for banks is not essentially
different over the years. A higher value for VAIC depicts a greater efficiency of IC in creating
value for a firm (Pulic, 2008). This value is the minimum for efficient firm performance in the
banking sector (i.e. sufficient value is being created to cover for employees’ salaries,
amortization, bank interests, taxes and dividends to shareholders) and enough is left for
intensive investments in development (Pulic, 2008). Thus, on average, the value creation
efficiency of African banks from the perspective of IC is quite low compared to banks/firms
on other continents. The average VAIC of the banking sector in this study is lesser than the
values reported by Ozkan et. al. (2017) in Turkey’s banking sector (3.8868), El-Bannany (2008)
for UK banks (10.80), Goh (2005) for Malaysian banks (7.11), Makki et al. (2008) for Pakistani
listed corporate sector (7.60) and Joshi et al. (2010) in Australia (3.80). Abeysekera (2007)
attributes these dissimilarities in the values and practices to economic, social and political
factors.

Year VAIC

2007 2.2844
2008 2.6624
2009 2.3131
2010 2.3677
2011 2.4904
2012 2.1905
2013 2.2646
2014 2.3619
2015 2.1658
Overall average 2.3483
Table 2. Kruskal–Wallis χ 2 7.952
Yearly intellectual Note(s): The VAIC is the IC performance
capital performance Source(s): Authors’ computations from data from Bank Scope, 2019
 From Table 3, the average board size (BODSIZE) for a bank in Africa is 9.0894 members. Board
This is in tandem with findings of Aboagye-Otchere (2014), Naimi et al. (2010) and Yatim et al. structures and
(2006) who obtained an average board size of 8/9 directors for firms. Regarding the proportion
of independent non-executive directors that make up the board, i.e. board independence
intellectual
(BODIND), the descriptive statistics reveal that for the entire duration of the study, it is capital
0.1549, indicating that about 16% of directors on the boards are nonexecutive directors. This
result is lower than that which was obtained by Aboagye-Otchere (2014), Yaacob and Che-
Ahmad (2012) and Mohamad-Nor et al. (2010), which were 69, 40 and 43%, respectively, in
firms. Interestingly, it can be deduced that the proportion of nonexecutive directors on the
board of banks is increasing. This means that the banking sector in Africa is gradually
incorporating the notion of independent nonexecutive directors. It was 0.6167 in 2015 as
against 0.1521 in 2007. There was a significant change between 2013 and 2014. Therefore, in
2015 the majority of board members of banks were nonexecutive directors. On the other hand,
the average ratio for board gender diversity (BODGEN) of the banks is 0.1076 (0.1074 in 2007
to 0.0834 in 2015). This indicates that about 11% of board members of a bank in Africa are
women and that there has been no improvement in the number of women on the boards of
banks over the period via affirmative actions. Also, the results from the Kruskal–Wallis test
suggest that there is no statistically significant difference in the average scores of the BS
variables over the years. The results thus show that average BODSIZE, BODIND and
BODGEN for the years are not significantly higher or lower than each other.
Results in Table 4 also indicate an average bank size (BSIZE) of 4.3482 over the period. It
could be deduced that banks in Africa are relatively small. The average 5-bank loan
concentration (CRL5) of banks is 82.3796%. This is greater than what Alhassan and Asare
(2016) realized in the specific context of Ghana, i.e. 53.27%. This indicates that about 82% of
the loan portfolio of banks is controlled by the largest five banks in a specific country. In
terms of the macro-economic indicators, the average gross domestic product per capita
growth rate (GDPpcg) in Africa is 2.7578% with a standard deviation of 2.7873. Asare (2018)
obtained similar average GDPpcg.

4.2 Effects of corporate board structures on intellectual capital

In keeping with Kennedy (2008) that multicollinearity exists when the correlation coefficients
between any two (2) variables is greater than 0.70, the results presented in Table 5 show that
using all the independent and control variables in the regression does not result in any

Year BODSIZE BODIND BODGEN

2007 9.1181 0.1521 0.1074

2008 9.0655 0.1547 0.1078
2009 9.1000 0.1547 0.1087
2010 9.1069 0.1536 0.1075
2011 9.1031 0.1544 0.1076
2012 9.0925 0.1538 0.1072
2013 9.0893 0.1544 0.1072
2014 5.5000 0.6167 0.0834
2015 5.5000 0.6167 0.0834
Average 9.0894 0.1549 0.1076
Kruskal–Wallis χ 2
1.162 7.473 0.035
Note(s): BODSIZE is the board size; BODIND is board independence; Table 3.
BODGEN is board gender diversity Yearly board
Source(s): Bank Scope and authors’ computations, 2019 structures
AJEB Obs. Mean Max Min SD

VAIC 2,450 2.3483 12.7358 8.4692 2.2987

BODSIZE 2036 9.0894 46.0000 1.0000 6.7847
BODIND 2036 0.1549 0.9000 0.0000 0.2478
BODGEN 2036 0.1076 1.0000 0.0000 0.1287
BSIZE 2,439 4.3482 7.2304 1.0828 1.1987
CRL5 2,489 82.3796 100.0000 55.7144 13.6246
GDPpcg 2,052 2.7578 12.4243 7.9079 2.7873
Note(s): VAIC is the IC performance; BODSIZE is the board size; BODIND is board independence; BODGEN is
board gender diversity; BSIZE is bank size; CRL5 is 5 bank loan concentration ratio; GDPpcg is gross domestic
Table 4. product per capita growth rate
Summary statistics Source(s): Bank Scope and authors’ computations, 2019

multicollinearity, which could bias the model’s coefficients. Strangely, BODSIZE is inversely
related to BSIZE. It could be as a result of the lack of harmonization of CG practices across
countries and banks in Africa. Corporate governance structures of banks are even noted to be
in their nascent stages in parts of Africa (Abor and Fiador, 2013). As a robustness check on
multicollinearity, the variance inflation factor (VIF) [1], as shown in Appendix 2, is calculated.
The VIF shows a mean of 1.5500 and thus indicates that the VIF’s mean is within acceptable
levels. Hence, the test result endorses the result of the Spearman’s test.
The panel regression analysis in Table 6 is used to establish the relationship between
VAIC and BSs, i.e. BODSIZE, BODIND and BODGEN, controlling for other bank-specific and
macro-economic variables, such as BSIZE, CRL5 and GDPpcg. Two estimation analyses, i.e.
system GMM and OLS-PCSE, are applied. Concerning the OLS-PCSE model, the probability
of the Wald chi-squared test of serial correlation [2] in this instance indicates the absence of no
first-order autocorrelation. This is an attestation of the suitability of the model used in
estimating the relationship between the variables. The study panel is unbalanced, and the
total observations are 932 for 366 banks.
The results of the OLS-PCSE show that BODSIZE and BODIND have a negative
relationship with VAIC, with BODGEN having a positive relationship with VAIC. This
indicates that smaller BODSIZE, less BODIND and more BODGEN result in higher VAIC.
However, the relationships between BODIND and BODGEN, on the one hand, and VAIC, on
the other hand, are significant. This is an indication that the VAIC level of a bank does depend
on the independence of the bank’s board. As the bank’s board becomes more independent,
VAIC tends to be decreasing. This implies that the inclusion of fewer executive directors on
bank boards does not bring to bear IC issues of the banks that ought to be given attention by
the boards and as such does not help in the performance of IC. This finding is similar to
findings of Al-Musalli and Ismail (2012) and Mujtaba and Williams’ (2011) that board
independence has a significant negative relationship with VAIC.
Al-Musalli and Ismail (2012) and Mujtaba and Williams (2011) state that the notion of
independent directors is fairly new in the Arab Gulf Cooperation Council region, and there are
challenges related with the appointment of suitable and rightly independent directors on the
boards of firms in the region. Besides, Abor and Fiador (2013) give an indication that CG could
be in its nascent stages in parts of Africa. This study concurs with Al-Musalli and Ismail
(2012) and Mujtaba and Williams (2011) and thus states that similar challenges could account
for the negative relationship between IC and the nature of the independence of the boards of
the banks in Africa. From the descriptive statistics, only about 16% of board members of
banks are independent directors, and this could be a reason for the results, as the boards do
not have the required number of non-executive directors to make the necessary impact.
 BODSIZE BODIND BODGEN BSIZE CRL5 GDPpcg
Board
structures and
BODSIZE 1.0000 intellectual
BODIND 0.2544*** 1.0000
BODGEN 0.2953*** 0.2143*** 1.0000 capital
BSIZE 0.0435* 0.0552** 0.1083*** 1.0000
CRL5 0.1273*** 0.0059 0.0520** 0.1460*** 1.0000
GDPpcg 0.0292 0.1092*** 0.0342 0.1685*** 0.1613*** 1.0000
Note(s): ***, ** and * denote significance at 1, 5 and 10%, respectively
BODSIZE is the board size; BODIND is board independence; BODGEN is board gender diversity; BSIZE is Table 5.
bank size; CRL5 is 5 bank loan concentration ratio; GDPpcg is gross domestic product per capita growth rate Spearman correlation
Source(s): Bank Scope and authors’ computations, 2019 matrix

Dependent variable: Value-added intellectual coefficient

OLS-PCSE System GMM

Lag 0.2459*** (3.0700)

BODSIZE 0.0070 (0.9000) 1.1125 (0.5600)
BODIND 0.5951** (2.0900) 2.7029* (0.1100)
BODGEN 0.7985* (1.7500) 45.3399 (0.5400)
BSIZE 0.2052*** (3.9100) 1.4003 (1.1700)
CRL5 0.0005 (0.1100) 0.0122 (0.1300)
GDPpcg 0.0204 (0.9700) 0.1400 (1.0200)
Constant 2.1858*** (5.0700) 1.2642 (0.1300)
Diagnostics
R-squared 0.2112
Number of Groups 255.0000 255.0000
Number of instruments 14.0000
Observations 932.0000 932.0000
Wald χ (6)
2
148.6400***
F-test 2.9400***
AR(1) 4.9200
p-value 0.0000
AR(2) 0.9800
p-value 0.3250
Hansen J 3.1100
p-value 0.7950
Note(s): ***, ** and * denote significance levels of 1, 5 and 10%, respectively. Where VAIC is the IC
performance; BODSIZE is the board size; BODIND is board independence; BODGEN is board gender diversity;
BSIZE is bank size; CRL5 is 5 bank loan concentration ratio; GDPpcg is gross domestic product per capita Table 6.
growth rate. Numbers in parentheses are z-statistics and t-statistics respectively Board structures and
Source(s): Bank Scope and authors’ computations, 2019 intellectual capital

Accordingly, it appears that the independent directors only sit on boards to satisfy the
requirements of codes of CG but might not be able to exercise their powers (Al-Musalli and
Ismail, 2012). It could also be generally accepted that there is no right proportion of executive
and non-executive directors on the boards, and as such, there is no effective performance of
the board to influence IC (Fama and Jensen, 1983; Pearce and Zhara, 1992). This again
confirms the view of Weir and Laing (2000) that non-executive directors often have less
information about the business of the firm and have difficulty understanding the
complexities of the firm.
AJEB The results also indicate that a higher VAIC of a bank does not depend on the size of the
board as there is no significant relationship between the two variables. In other words, banks
that have larger boards are also noted not to necessarily have higher VAIC. The board size
does not predict the level of VAIC of banks. Hence, it cannot be concluded that banks with
larger boards have a higher performance of IC. This result counters Al-Musalli and Ismail’s
(2012) and Joshi et al.’s (2010) findings. This is contrary to the view that larger boards are
more likely to increase firms’ ability to obtain and secure critical resources from their
environment, such as IC (Abeysekera, 2010). This also does not support the resource-based
view. The resource-based view indicates that firms gain competitive advantage and superior
performance via the acquisition, holding and subsequent usage of strategic IC (see Barney,
1991; Wernerfelt, 1984). The resource-based view also indicates that an imperative function of
the bank board is the provision of IC to improve bank performance (Al-Musalli and Ismail,
2012; Pfeffer, 1972). The reason for the nonexistence of any relationship between board size
and IC cannot be the fact that the board size in African banks is abnormal as the study finds
the average size of a board to be 9.0894 members and is similar to that found in other
jurisdictions by Naimi et al. (2010) and Yatim et al. (2006).
Also, a BS in the form of board diversity is seen to have a significant positive relationship
with VAIC. Banks that have boards that are gender-diverse tend to have higher IC. This
result is similar to Swartz and Firer (2005) that indicated a positive relationship between
board diversity and IC. This evidence also supports the resource-based view that boards that
are diverse in terms of gender are likely to have a pool of feminine expertise that could propel
different ideas to improve board functions and the quality of decisions by bringing in new
perspectives and enriching the information set available to the team, such as managing IC
investments (Boone and Hendriks, 2009; Mannix and Neale, 2005).
In terms of the control variables, BSIZE is negatively related to VAIC significantly; i.e.
larger banks have lower VAIC. This is contrary to Alhassan and Asare (2016), Al-Musalli and
Ismail (2012) and Youndt et al. (2004) but similar to Goebel (2015). This indicates that large
banks are not efficient with the utilization of IC than small banks, and this does not reflect the
economies of scale and scope enjoyed by large banks. This means that the size of banks
influences their value creation efficiency (Asare, 2018). Smaller banks have better IC
investments and utilize them to create diverse value for stakeholders. Unexpectedly, the
GDPpcg of the operating environment of a bank does not contribute to its value creation
abilities. The economic growth i.e. GDPpcg perhaps affects the value-creating efficiency of
the banks not from an IC perspective. Perhaps, the banks are rather contributing to the
economic growth of the countries they are operating in and as such could account for the
relationship indicated.
The OLS estimation fails to justify the probability of preceding VAIC affecting current
VAIC. The system GMM estimation comes in to also deal with endogeneity concerns that are
inherent in the models estimated by the OLS-PCSE. The validity and robustness of the
system GMM are tested with Hansen J and Arellano–Bond tests. They make available
sufficient proof of the dependability of the estimated coefficients in the models. The Hansen J
tests the null hypothesis that the over-identifying constraints are valid. The test outcomes for
the models do not reject the null hypothesis of valid instruments. Though the models depict
no first-order autocorrelation, the null hypothesis of no second-order auto-correlation could
not also be rejected (Arellano and Bond, 1991).
As a justification for using the system GMM, the regression indicates that the lag of the
VAIC influences VAIC positively and thus points out that the previous year’s IC of a bank
affects its current IC. With the exception of BODSIZE that has a positive relationship with
VAIC, the BS variables have a negative relationship with VAIC. The results of the system
GMM show that BODIND has a negative and significant relationship with VAIC. This is
similar to the OLS-PCSE results obtained in this section. The alternate hypothesis H2 that
there is a positive relationship between BODIND and IC is thus rejected. It is again similar to Board
Al-Musalli and Ismail (2012) and Mujtaba and Williams (2011). As already indicated, the structures and
VAIC level of banks does depend on the independence of the banks’ boards.
The system GMM results also do not find any strong positive association between the size
intellectual
of the board (BODSIZE) and VAIC in the banking sector of Africa. In other words, banks that capital
have smaller boards are also noted to have lower IC. The coefficient for the BODSIZE is not
significant, indicating a weak association. This accepts the Ho that there is no positive
relationship between board size and IC. This result is contradictory to the findings of the OLS-
PCSE but similar to that of Al-Musalli and Ismail (2012). In terms of board size, it is also an
indication that there is no evidence to support the resource-based view in the context of the
banking sector in Africa. With respect to BODGEN, the system GMM estimations find no
evidence to support the OLS-PCSE. The results here indicate no significant relationship
between BODGEN and VAIC, which is contrary to Swartz and Firer (2005). Hypothesis H3
which states that there is a positive relationship between the diversity of the board and the IC
of banks is rejected.
In terms of the control variables, none depicted a strong association with VAIC in the
system GMM estimation. The OLS-PCSE and system GMM show that BSIZE is negatively
related to VAIC but not significantly. Like in the OLS-PCSE, the results in the system GMM
also indicate that the CRL5 and GDPpcg GMM have positive and insignificant relations with
VAIC. These indicate the inconsistency of results across the two estimations.

5. Conclusion
The study concludes that the composition of the boards, i.e. board independence of the banks
thus has repercussions on investments in IC, which also has consequences on their value
creation efficiencies. This is because the results of the study indicate that board independence
has a significant negative relationship with IC. Thus, less independent boards tend to make
policies and take actions that improve IC. The results also indicate that the IC of banks does
not strongly depend on board size and board gender diversity. In other words, banks with
larger boards or more gender-diverse boards are noted not to necessarily have higher IC.
Inferring from the findings of this study, as boards become less independent, they tend to
make policies and take actions that advance IC, i.e. improvements in career development
policies and programmes; recruitments of top management personnel, employees with
requisite qualifications and employment profile; improvements in incentives and employee
welfare issues; improvement of overall working conditions and culture; institution of
improved information systems and internal controls; building networks of important
stakeholders. Furthermore, bank boards with more executive directors are likely to support
nobility in work environments; encourage good negotiating skills to clinch contracts and
agreements with partners and clients; build a brand and reputation for the bank, etc. This
evidence does not necessarily support the resource-based view that portends that
independent bank boards are much resourceful. Enterprises from the regulatory bodies in
relation to these are necessary periodically to make the banking sector robust in Africa. The
central banks should continue to take actions toward instituting and developing bank BSs to
influence bank IC investments and managements. The central banks should control board
composition/independence as a BS to make bank management better in specific situations.
Any attempt by central banks, other regulatory bodies and management of banks that
emphasize on improving bank BS to supervise important investments and managements of
IC could accelerate their growths. The study recommends that the executive directors should
dominate boards of banks. Nevertheless, banks are cautioned to be circumspect in increasing
their executive directors on the boards as the inclusion of the right proportion of executive
AJEB and non-executive directors is equally important for accountability and transparency
purposes.
Large bank boards with more executive and non-executive directors tend not to have any
extreme impact on IC of banks. Larger boards do not necessarily have greater insights into
the operation of the banks and are not inevitably able to institute measures that improve IC
investments and managements thereby increasing value creation efficiencies. Banks with
smaller boards do not have IC efficiencies that help them to gain more competitive
advantages than their counterparts with larger boards. For better bank IC, bank board size
should not be a factor.
The study also emphasizes that, boards dominated by more female directors are not likely
to have better IC. Banks in Africa in general, should not increase the number of female
directors on their boards as a way of improving their IC managements and performance. The
acquisition, holding, management and reporting of IC in banks are seen as part of IC
accounting and are based on governance decisions. The composition of boards with respect
to male and female directors does not have many implications on IC investments and
performance.
The study’s data and methods are bound by some latent limitations. This study
concentrated on secondary data sources and is prone to challenges of using such data for
research analysis. Data for this study were collected for several countries. The political, social
and economic systems differ across the countries and sub-regions used in this study and as
such peculiarity of results are bound. The study is also limited to the financial sector and
specifically, the banking industry in terms of its generalization. More studies, particularly in
Africa, are necessary to corroborate this study’s findings and contribute to the extant
literature. The effect of other contextual CG variables, which were not considered in this
study, could also be explored. It is also recommended that researchers interested in this area
should investigate why some BS variables employed in this study did not have significant
influence on IC through other quantitative/qualitative studies.
Notes
1. As a rule of thumb, if the VIF of a variable exceeds 10 (VIF >10), it is considered to be highly collinear
(Gujarati and Porter, 2003).
2. A probability of Wald chi-squared less than 0.05 indicates the fitness of the model in explaining the
relationship between the independent and dependent variables.

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Corresponding author
Nicholas Asare can be contacted at: [email protected]
 Appendix 1

Western Number Central Number Eastern Number Northern Number Southern Number
of Banks of Banks of Banks of Banks of Banks
1 Benin 7 1 Cameroon 8 1 Burundi 1 Algeria 16 1 Angola
2 Burkina Faso 9 2 Central African 2 Comoros 2 Egypt 2 Botswana 12
Republic
3 Cape Verde 3 Chad 3 Djibouti 3 Libya 3 Lesotho
4 Côte d’Ivoire 13 4 Congo 4 Eritrea 4 Mauritania 8 4 Malawi 13
5 Gambia 5 Democratic 5 Ethiopia 5 Morocco 15 5 Mauritius 16
Republic of
Congo
6 Ghana 25 6 Equatorial 6 Kenya 6 Tunisia 19 6 Mozambique 9
Guinea
7 Guinea 7 Gabon 7 Rwanda 7 7 Namibia 7
8 Guinea-Bissau 8 Madagascar 8 Seychelles 8 São Tomé
and Príncipe
9 Liberia 9 Somalia 9 South Africa 23
10 Mali 9 10 Sudan 13 10 Swaziland 5
11 Niger 11 South Sudan 11 Zambia 21
12 Nigeria 26 12 Tanzania 31 12 Zimbabwe 14
13 Senegal 11 13 Uganda 15
14 Sierra Leone 13
15 Togo
Total 113 8 67 58 120

Note(s): Shaded countries had available data for this study

Source(s): Africa Union, 2019
intellectual
capital
structures and
Board

Africa by regions
List of countries in
Table A1.
AJEB Appendix 2

Variable VIF 1/VIF

BODSIZE 1.1900 0.8388

BODIND 1.5900 0.6290
BODGEN 1.8000 0.5554
BSIZE 1.5700 0.6373
CRL5 1.7900 0.5591
GDPpcg 1.3800 0.7244
Mean VIF 1.5500
Note(s): BODSIZE is the board size; BODIND is board independence BODGEN is board gender diversity;
Table A2. BSIZE is bank size; CRL5 is 5 bank loan concentration ratio; GDPpcg is gross domestic product per capita
Variance inflation growth rate
factor of variables Source(s): Bank Scope and authors’ computations, 2019

Appendix 3
Intellectual capital
The computation of VAIC is simplified as follows (Pulic, 2004, 2008):
VA ¼ OUT  IN (A1)
where OUT is the total revenues of a bank consisting of interest incomes, fees and commission incomes; IN
denotes bank costs of operations comprising interest, finance and administration expenses (excluding
personnel expenses, treated as investments but not costs). The equation for computing Human capital
efficiency (HCE) is specified by
VA
HCE ¼ (A2)
HC
where VA is value added described in 1 and HC is the wages and salaries constituting total remuneration.
The calculation for Structural Capital (SC) of a bank is as follows:
SC ¼ VA  HC (A3)
VA and HC are as per equations (A1) and (A3). The equation specified in equation (A4) is Structural
Capital efficiency (SCE):
SC
SCE ¼ (A4)
VA
The equation on the efficiency of the capital employed efficiency (CEE) is computed as follows:
VA
CEE ¼ (A5)
CE
where CE is the bank’s net book value of the net assets.
Largely, the value formation efficiency (i.e. Value added intellectual capital efficiency - VAIC) is the
sum of all value making efficiencies as specified in equation (A7); whereas the IC efficiency is as specified
in equation (A6).
ICE ¼ HCE þ SCE (A6)
VAICTM ¼ ICE þ CEE (A7)