The Effect of Intellectual Capital on a Company's Performance Moderated by Its Governance and It Strategy Integration Employed by Banks Listed in Indonesian Stock Exchange

By Irawanto, Dodi Wirawan; Hussein, Ananda Sabil et al. | The South East Asian Journal of Management, October 2017 | Go to article overview

The Effect of Intellectual Capital on a Company's Performance Moderated by Its Governance and It Strategy Integration Employed by Banks Listed in Indonesian Stock Exchange


Irawanto, Dodi Wirawan, Hussein, Ananda Sabil, Gondomono, Haryo, The South East Asian Journal of Management


The banking industry now faces the challenge of determining the kind of competitive strategy used in order to prioritize the needs of its stakeholders (Li and Ye, 1998). Multidimensional corporate performance is needed in order to fulfill the desires of all stakeholders, which are increasingly complex and often conflicting. Therefore, there should be a synergy between performance measurement and growth revenue to measure the success of its implementation. Indonesian Banking Survey 2015's results show that human development and automation initiatives as intangible assets (Harrison and Sullivan, 2000) should be increased to achieve the company's objectives (profit). Profit from the company's objectives in finance can be indicated with the two conditions of sales and investment, by which the company should be able to generate profit by using all assets after taking into account the cost of capital (Soedaryono et al., 2012), known as the return on assets (ROA).

This condition implies the existence of competition in the banking industry in order to achieve the company's short- and long-term goals, and it triggers the banking industry to face high operational risks in the face of competition to get advantages and benefits from its competitors as the achievement of company performance. In order to achieve the desired ROA, the intangible assets (intellectual potential) of physical capital, human resources, and information technology are required (Pulic, 1998). The combination of physical and intellectual potential capital is known as intellectual capital (IC). The use of IC serves as a strategic asset to help the company survive in the competition for scarce resources (Kehelwalatenna and Premaratne, 2012).

Researchers studying IC use the VAICTM method to classify IC into three main components: human capital (HC), structural capital (SC), and customer capital (CC) (Bontis, 2001; Pulic, 1998; Stewart, 1997; Edvindson and Malone, 1997). The role of intellectual capital in improving a company's performance in competitive banking depends on each company's technological superiority (Becalli, 2006; Chen et al., 2005; Li and Ye, 1998; Powell et al., 1997). Excellent information technology can be applied when there is support from top management (Johnson and Lederer, 2006; Ross and Weill, 2002; Raghunathan et al., 1999).

To ensure that the role of intellectual capital in the performance of bank profits is in accordance with the multidimensional purpose, it needs a new framework in management strategy, where investments towards IT cannot be separated from a company's strategy of (Li and Ye, 1998) and get support from CEO/CIO in achieving the company's goals (Johnson and Lederer, 2006), as well as its need for corporate governance and eliminating the risk of error (McGee, 2009; Macey and O'Hara, 2003) in business competition (Lawson and Samson, 2001).

Therefore, this study tries to develop what has been done in previous studies that only examine the influence of IC on a company's performance (Ulum, 2012; Kamath, 2007; Mavridis, 2004; Firer and Williams, 2003) by adding IT strategy integration and corporate governance as moderating variables. The study will look at how the effect of an integrated IT strategy and corporate governance can strengthen or weaken IC's relationship to company performance in the banking industry. Financial performance will be measured in this study as profitability indicators of ROA. With reference to the report issued by the deposit insurance agency (LPS), this study investigates the banking industry in 2013 and 2014, since the net interest margin (NIM) in the year 2013 reached 4.9%, and 4.2% in 2014. The decline in NIM has exerted pressure on bank profitability.

This study helps the banking industry in achieving the company's competitive goals, which are focused more on the empowerment of intangible assets such as value-added capital employed, valueadded human capital, and structural capital value added, as well as IT strategy integration, whose benefits so far have not been felt, making it necessary to put some effort into improving IC and the support from top management for the selection of an information strategy. …

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