“Retraction: The effect of human capital on performance of East African commercial banks”

This paper aims to examine the effect of human capital on performance of East African commercial banks. Given increased competition and regulatory pressure, commercial banks must understand the intrinsic value of human capital as a key success factor. With extraordinary growth in financial innovations, firms are gradually focusing on knowledge resources as a source of competitive advantage and superior performance. Human capital lies at the heart of knowledge resources. Therefore, firms should strive to develop and use human capital for sustained superior performance. The study population consists of 42 commercial banks licensed by the Central Banks of East Africa. Data was analyzed using descriptive and inferential statistics. The study had three control variables such as firm size, firm age, and market share. The independent effect of human capital on firm performance was examined. Thus, this study is more objective and superior. It is focused on the East African banking sector. Therefore, future re- search should consider other sectors of the economy. Besides, all the variables were measured quantitatively, which allowed considering the use of qualitative measures. This can shed more light on the human capital and performance nexus. The results of the study are of strategic importance to managers and regulators, given the important link between banks and macroeconomic factors. Accordingly, these findings will help develop strategic decisions and policies that support the growth of a robust African banking sector.


INTRODUCTION
Researchers claim that the world's economies are gradually moving from being production-based to knowledge-based due to technological revolutions and changing customer expectations (Clarke & Gholamshahi, 2018; Mahdi, Nassar, & Almsafir, 2019). Accordingly, modern-day firms must appreciate the importance of intangible resources as a source of competitive advantage and superior performance. As early as in the 1960s, Becker (1964) mentioned that physical factors of production explained a relatively small part of the growth in income and wealth of nations. Later in the 1990s, Drucker (1993) stated that traditional factors of production were easily accessible to competitors and had little strategic importance, which emphasized the importance of intangible resources. Becker (2009) observed that human capital accounted for approximately three-quarters of the developed countries' wealth. From the same point of view, it is believed that human capital affects the development and utilization of other knowledge resources of a firm (Wang & Chang, 2005;Shivdas & Ray, 2017).
The influence of knowledge resources on firm performance is widely cited in the extant literature. However, the impact differs across indus-tries due to heterogeneity of business processes and resource profiles (Seleim, Ashour, & Bontis, 2007;Megna & Mueller, 1991). In particular, human capital is vital to service industries, for instance, banks, where competitive advantage hinges on innovation and service quality (Young, Su, S.-C. Fang, & S.-R. Fang, 2009). Furthermore, banks maintain minimal physical assets, so they are more reliant on human capital for competitive advantage. Accordingly, banks must invest heavily in their human capital for long-term sustainability ( Despite the importance of human capital to service organizations, only a few studies have examined the effect of human capital on firm performance in the banking sector, in particular, in East Africa, which pioneered mobile banking. Most of the mentioned studies focused on manufacturing firms in developed and emerging economies, that is, the U.S., Europe, Canada, and Asia. In addition, most of previous studies measured human capital using qualitative measures (Khalique, Bontis, Nassir bin Shaari, & Md. Isa, 2015; Bapna, Langer, Mehra, Gopal, & Gupta, 2014;). Therefore, the main focus of the study is to examine the effect of human capital on the performance of Kenyan banks.

LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT
Resource-based view theory suggests that firm resources are a source of competitive advantage and superior performance (Hatch & Dyer, 2004

Performance of the banking sector
The banking sector is of enormous importance to regulators, scholars, and practitioners due to its influence on economic development. where FP -firm performance; HC -human capital; FA -firm age; FS -firm size; MS -market share; and ε it -error term.

RESULTS AND ANALYSIS
The study conducted a variety of diagnostic tests to determine the appropriateness of the panel data for analysis. The tests included normality, stationarity, multicollinearity, and autocorrelation. All the tests established that the data was suitable for further statistical analysis. Descriptive statistics are presented in Table 1, results of correlation analysis in Table 2 and the results of multiple regression analysis in Table 3.  Table 2 shows that all the variables were positively correlated as evidenced by human capital and performance (r = 0.598, ρ < 0.01), firm age and performance (r = 0.294, ρ < 0.01), firm size and performance (r = 0.372, ρ < 0.01), market share and firm performance (r = 0.713, ρ < 0.01), firm size and firm age (r = 0.542, ρ < 0.01), firm size and hu-r e t r a c t e d man capital (r = 0.306, ρ < 0.01), human capital and firm age (r = 0.447, ρ < 0.01), market share and human capital (r = 0.406, ρ < 0.01), market share and firm size (r = 0.808, ρ < 0.01) and market share and firm age (r = 0.503, ρ < 0.01). Table 3 shows the results of the random effect regression analysis. The study found that human capital had a positive and significant effect on performance (β = 0.447, ρ < 0.05). Thus, the null hypothesis that human capital has no significant effect on performance is rejected, and it is concluded that human capital had a positive and significant impact on bank performance. A one-percent change in human capital leads to a 44.7% change in firm performance. The study controlled for firm age, firm size and market share. Firm age (β = -0.0866, ρ > 0.05) and firm size (β = -0.1406, ρ < 0.05) had a negative effect on firm performance, while the impact of market share was positive and significant (β = 0.494, ρ < 0.05). As firms grow in size, they suffer bureaucracies that lead to inefficiencies and resistance to change ultimately weakening performance. This phenomenon is christened as structural inertia (Hannan & Freeman, 1984).

DISCUSSION
These findings support a resource-based view theory that postulates that competitive advantage and superior performance emanate from Note: ** correlation is significant at the 0.01 level (2-tailed); * correlation is significant at the 0.05 level (2-tailed).

CONCLUSION
The study sought to investigate the relationship between human capital and firm performance in the banking sector. Empirically, the study found that human capital had a positive and significant effect on firm performance, thus validating the propositions of a resource-based view theory. Banks operate in a highly competitive environment coupled with unprecedented growth in financial innovation and regulatory surveillance. Thus, banking institutions must invest heavily in their human capital for innovativeness and customer satisfaction to create sustained competitive advantage for survival and enhanced performance. This entails the use of human capital and other knowledge assets to solve customer problems in order to gain a competitive advantage. Furthermore, investments in recruitment, training, and retention of employees contribute to longterm value creation. For managerial purposes, bank managers should consider innovative ways of developing and utilizing their human capital to optimize firm performance. Despite the novelty of the findings, there are some limitations. First, the study was longitudinal, so the data was secondary and quantitative. Besides, all variables were measured using proxies derived from income statements and balance sheets. Future studies may consider a qualitative approach. Finally, the paper focused on the Kenyan banking sector, so other sectors of the economy may be considered in future studies.

ACKNOWLEDGMENT
This work was supported by the Youngsan University Research Fund of 2020.