“Corporate governance components and intellectual capital: Evidence from Jordanian banks”

This study investigates the impact of corporate governance components on intellectual capital performance in Jordanian banks. The research purpose is to gain insights into the relationship between various corporate governance components, including board size, board independence, CEO duality, and concentration of ownership, and their influence on intellectual capital efficiency. Ordinary Least Squares regression analysis is employed using data from 156 Jordanian banks by adding two control variables, total assets, and return on equity (ROE) to explore their potential influence. The obtained results reveal significant associations between certain corporate governance factors and intellectual capital efficiency. Ownership concentration demonstrates a direct and statistically relationship with IC performance, indicating that more concentrated ownership leads to improved management and utilization of intellectual capital resources. Additionally, return on equity shows a significant positive correlation with intellectual capital efficiency (Adj R2 was 22.5%). However, the study does not find significant relationships between board size, Chief Executive Officer (CEO) duality, and board independence with intellectual capital efficiency in Jordanian banks. These results suggest that the impact of these governance factors on IC performance may be more context-dependent and nuanced within the banking industry.


INTRODUCTION
Corporate governance, often considered the cornerstone of a well-functioning financial system, is a set of mechanisms and principles designed to ensure that a bank's management adheres to ethical standards, pursues sound business practices, and remains accountable to its stakeholders.On the other hand, intellectual capital represents the collective knowledge, skills, and expertise of an organization's human resources, which can be harnessed to foster innovation, improve decision making, and enhance overall performance.
The financial sector in Jordan, like many emerging economies, has experienced notable growth and transformation in recent years.The nation's banks play a crucial role in facilitating economic development, attracting investment, and supporting financial inclusion.However, these institutions also encounter various challenges, including the need for effective corporate governance structures to ensure stability and resilience.
The formulation of the scientific problem driving this study lies in the need to comprehensively assess the influence of corporate governance on IC performance within the specific context of Jordanian banks.By investigating the link between corporate governance and intellectual capital performance, this study aims to provide valuable insights and evidence-based recommendations for practitioners, regulators, and policymakers in the Jordanian banking industry.The findings will not only enhance the understanding of the factors that contribute to effective governance and intellectual capital utilization but also inform the development of tailored strategies to enhance intellectual capital performance in the sector.
To achieve this goal, the study will employ a robust methodology, encompassing quantitative analysis of financial and governance data, as well as qualitative investigations through interviews and surveys.By adopting a mixed-method approach, the research endeavors to provide an analysis of the complex and multidimensional nature of the corporate governance-intellectual capital relationship in the Jordanian banking context.

LITERATURE REVIEW AND HYPOTHESES
Corporate governance, as a crucial aspect of business management, has garnered substantial attention from researchers, policymakers, and practitioners.Effective corporate governance is seen as a mechanism to ensure that firms are managed in a manner that aligns with the interests of stakeholders and enhances transparency and accountability.
In the context of the banking industry, the significance of corporate governance is amplified due to the critical role that banks play in the stability and integrity of financial markets.
Numerous studies have explored the components and mechanisms of corporate governance, highlighting the importance of elements such as board structure, audit committees, executive compensation, and ownership structure.The literature extensively discusses the corporate governance importance in shaping firm performance and value creation (Shubita, 2022(Shubita, , 2023)).There has been a growing focus on understanding the specific impact of corporate governance factors on intellectual capital (IC) performance in recent years.This literature review aims to comprehensively analyze the existing research concerning the link between corporate governance factors and IC performance, particularly in the banking industry, with a specific emphasis on the Jordanian banking sector.
Academic research has shown increasing interest in exploring the influence of corporate governance factors on IC performance, as organizations recognize the competitive advantage offered by IC.In the banking sector, this understanding is particularly critical due to the industry's complex nature and the need for effective knowledge and innovation management.
This study aims to investigate the relationship between corporate governance components and the utilization of intellectual capital in Jordanian banks.By examining how specific corporate governance mechanisms impact the management and deployment of intellectual capital, this study seeks to provide evidence-based insights that can inform policy decisions and strategic directions for financial institutions in the region.
Human capital constitutes the essential element of IC as it plays a pivotal role in carrying out tasks and responsibilities.It encompasses various factors such as knowledge, skills, abilities, and the collective behavior of workers, all working together towards a fundamental objective for an institution which serves as the primary source of profitability (Xu et al., 2021).
Structural capital represents the tangible aspect of IC, encompassing technology, engineering competencies, software, databases, patents, and other resources that support and facilitate the organization's operational activities.It is the knowledge embedded within these organizational structures that forms the core of IC (Tahir et al., 2018).
Relational capital pertains to the value derived from an institution's relationships with its clients.This is reflected in customer satisfaction, loyalty, retention, attentiveness to customer suggestions and complaint resolution, responsiveness to their desires and needs, active engagement in business transactions, and fostering collaborative partnerships (Shubita, 2019).

METHOD
The data are collected from a sample of Jordanian banks operating in the country.The sample was selected using stratified random sampling to ensure representation from various bank sizes and types.The data primarily consisted of financial reports, annual reports, and corporate governance documents of the selected banks, spanning a specific time period.
Several statistical analysis techniques are employed, including multiple regression analysis, to examine the relationship between corporate governance components and intellectual capital management.Specifically, the study assessed the impact of each corporate governance component on intellectual capital management while controlling for potential confounding variables.The first model will be used to study the relationship between the study variables, and the second equation will investigate the effect of the bank size, and the last one is to examine the bank profitability effect, the study models are as follows: where VA IC -intellectual capital, BS -board size, CEODUAL -the separation between CEO and BOD manager, takes one if the separation exits, and zero otherwise, IND -number of independent board of directors' members, CONS -shareholders that own more than 5%, Asst -total assets logarithm, ROEreturn on equity, ε -error (residual value).
The first model examines the corporate governance components such as board size, segregation of duties, BOD independency, and shareholders' constraint impact as independent variables on intellectual capital as a dependent variable.
To assess firm performance, the study will employ the ROE metric, calculated by dividing the net in- Capital Employed Efficiency (CEE) will be determined by scaling the value-added by the total assets.The Value Added (VA) component will be evaluated using AlNajjar and Riahi-Belkaoui (1999), which encompasses various elements, including interest (I), dividends (DE), taxes (T), retained earnings (R), non-controlling interest (M), and depreciation (D).
Furthermore, (SCE) will be computed by dividing Structural Capital (SC) by VA, while HCE will be calculated by dividing VA by a firm's personal expenses (HC) (Lin, 2018).It is important to note that SC is derived from the difference between VA and HC.This comprehensive approach to evaluating intellectual capital aims to provide a robust and nuanced assessment of its performance in the context of Jordanian banks.The research sample includes 13 Jordanian shareholder banks from 2010 to 2021.

RESULTS
Various types of statistical analyses were conducted, encompassing descriptive analysis, correlation, and Ordinary Least Squares (OLS) regression analysis.The descriptive test yielded valuable insights into the dataset, while the correlation test facilitated the identification of links between the variables employed in the regression models.To test the hypotheses, the OLS regression model was employed.is a weak positive relationship between the concentration of ownership and the level of IC efficiency in Jordanian firms.As the ownership becomes more concentrated, the intellectual capital efficiency tends to increase slightly.
VAIC vs. Assets: The correlation coefficient between VAIC and Assets is -0.266 (significant at the 0.01 level).This negative correlation indicates a weak inverse relationship between the total assets of Jordanian firms and their IC efficiency.As the total assets increase, the intellectual capital efficiency tends to decrease slightly.
VAIC vs. ROE: The correlation coefficient between VAIC and ROE is 0.358 (significant at the 0.01 level).This positive correlation suggests that there is a moderate positive relationship between the ROE and the level of intellectual capital efficiency in Jordanian firms.Higher intellectual capital efficiency tends to be associated with higher returns on equity.
In summary, the Pearson correlation matrix provides valuable insights into the links between different variables in the dataset (Gujarati, 2021).The significant correlations highlight certain associations, such as the positive link between IC efficiency and concentration of ownership and the negative relationship between intellectual capital efficiency and total assets.However, it is good to note that some correlations are weak and not statistically significant, indicating that certain variables may not significantly influence intellectual capital efficiency in Jordanian firms.
Tables 3 to 5 present the regression models results, where in Model 1, the factors considered were board size (BS), CEO duality (CEODUAL), board independence (IND), and concentration of ownership (CONC), with intellectual capital efficiency (VAIC) as a dependent variable.The OLS analysis showed that the constant term (intercept) was 2.703, with a t-value of 2.863, indicating statistical significance at a 5% level (p = 0.005).Among the independent variables, only concentration of ownership (CONC) demonstrated potential significance with a coefficient of 0.007 and a t-value of 1.761, bordering on statistical significance at a 10% level (p = 0.080).However, the remaining independent variables, including board size, CEO duality, and board independence, were not statistically significant at conventional levels (p > 0.05).
The adjusted R-squared value (Adj R2) for Model 1 was 0.041, indicating that only 4.1% of the variation in intellectual capital efficiency could be explained by the included variables.
In Model 2, total assets were added as a control variable to investigate its impact on the relationship between corporate governance factors and intellectual capital efficiency.The results showed that the constant term (intercept) in Model 2 was 7.895, with a t-value of 3.527, indicating statistical significance at a 1% level (p = 0.001).The inclusion of total assets resulted in a significant negative coefficient for Assets (-0.591) with a t-value of -2.549, indicating that higher total assets were associated with lower intellectual capital efficiency (p = 0.012).However, the other corporate governance factors (board size, CEO duality, board independence, and concentration of ownership) were still not statistically significant (p > 0.05).The adjusted R-squared value (Adj R2) for Model 2 improved to 0.075, suggesting that 7.5% of the variation in intellectual capital efficiency could be attributed to the variables included in the model.
In Model 3, return on equity (ROE) was added as a control variable.The results demonstrated that the constant term (intercept) in Model 3 was 1.143, with a t-value of 1.289, suggesting a lack of statistical significance at conventional levels (p = 0.199).Among the corporate governance factors, board size, and concentration of ownership exhibited potential significance with t-values of -2.268 (p = 0.025) and 2.571 (p = 0.011), respectively.Interestingly, CEO duality (CEODUAL) displayed statistical significance with a coefficient of 1.053 and a t-value of 2.762 (p = 0.006).Furthermore, return on equity (ROE) showed strong significance with a coefficient of 0.137 and a t-value of 6.072 (p < 0.001).The adjusted R-squared value (Adj R2) for Model 3 substantially increased to 0.  The hypotheses testing results indicate that the first null hypothesis will be rejected, so the corporate governance has a significant influence on Jordanian banks' IC, the second null hypothesis will be rejected, so bank size will affect the link between corporate governance and IC.Lastly, the third null hypothesis will be rejected, so bank profitability will affect the link between IC and corporate governance.

DISCUSSION
In examining the link between corporate governance and IC performance, the results of this study align with some previous research while presenting unique insights.Similar to findings by Tahir et al. (2018), this study revealed a significant positive association between concentration of ownership and intellectual capital efficiency.This suggests that a more concentrated ownership structure may lead to better management and utilization of intellectual capital in Jordanian banks.Moreover, the results of this study are in line with Lin (2018), indicating a positive and significant relationship between return on equity and IC efficiency.This finding highlights the importance of financial performance in enhancing intellectual capital within the banking sector.
In contrast, this study did not find significant relationships of board size, CEO duality, and board independence with intellectual capital efficiency in Jordanian banks.These results differ from some previous studies such as Anghel et

CONCLUSION
The purpose of this study was to investigate the influence of corporate governance factors on IC performance in Jordanian banks.Through an OLS regression analysis, the study examined the relationships between various corporate governance variables and IC efficiency, while also considering control variables such as total assets and ROE.
The obtained results found that concentration of ownership and return on equity significantly influence intellectual capital efficiency in Jordanian banks.Higher ownership concentration was associated with more efficient management and utilization of IC, while better financial performance, as measured by ROE, was positively correlated with IC efficiency.
However, this study does not find a significant relationship between board size, CEO duality, and board independence with IC efficiency.These results indicate that these governance factors may not have a substantial impact on IC performance in the specific context of Jordanian banks.
From these findings, several conclusions can be drawn.Firstly, ownership structure plays a critical role in shaping intellectual capital efficiency in Jordanian banks.Concentrated ownership allows for focused decision making and better alignment of interests, leading to improved utilization of intellectual capital resources.Secondly, return on equity serves as a significant driver of intellectual capital efficiency, highlighting the importance of financial performance in fostering intellectual capital growth.
However, the non-significant relationships between certain governance factors and intellectual capital efficiency imply that the impact of corporate governance on intellectual capital may be more nuanced and context-dependent in the banking sector.This suggests that other factors, such as regulatory requirements and stakeholder involvement, may have a more substantial influence on intellectual capital performance in banks.
In conclusion, this study contributes to the understanding of how corporate governance factors affect IC performance at Jordanian banks.The findings underscore the importance of ownership structure and financial performance in shaping IC efficiency.By recognizing these factors, policymakers and bank managers can develop targeted strategies to enhance intellectual capital utilization and ultimately improve the competitiveness and sustainability of the banking sector.Additionally, future research may explore other contextual factors and longitudinal analyses to gain a more comprehensive understanding of the link between corporate governance and intellectual capital in banks.
In summary, the reviewed literature highlights the significant impact of corporate governance factors on IC performance in the banking sector, specifically in the context of Jordanian banks.Board independence, ownership structure, CSR practices, and regulatory mechanisms all emerged as important factors that influence the creation, utilization, and protection of intellectual capital.These findings underscore the importance of effective governance mechanisms in fostering a conducive environment for intellectual capital development and utilization.Moreover, they provide valuable insights for practitioners, regulators, and policymakers seeking to enhance IC performance in the Jordanian banking industry and beyond.
Pulic (2000)anagement and Financial Innovations, Volume 20, Issue 4, 2023 http://dx.doi.org/10.21511/imfi.20(4).2023.22NawazandHaniffa(2017)investigated64firmsacross18countries.Their findings demonstrated a statistically positive relationship between ROA and IC.The VAIC method, pioneered byPulic (2000), is a widely accepted approach for computing IC.Due to its popularity and applicability, this method was selected as the preferred methodology in the present study.Other studies have also explored the crucial association between IC and firm performance (e.g.,Ariff etal., 2016; Ali & Anwar, 2021; Firer & Williams, 2003; Zeghal & Maaloul, 2010; Eissawi & Eltahan, 2018; Pew et al., 2007; Ishak & Al-Ebel, 2018), further affirming the significance of IC in influencing organizational success.Lu et al. (2021) conducted a study aiming to analyze the link between IC and firm performance.Ali and Anwar (2021) examined the impact of IC on the efficiency of hospitals in Iraq's Kurdistan region.Using a quantitative approach and a sample of several patients, the study assessed the impact of IC components on competitive advantage.The study revealed that human capital had the strongest association with the success of the hospitals, while ownership as an element of IC showed the least effective association.Following a similar approach, Bayraktarglu et al. (2019) further developed and customized the same model to explore the link between IC and company performance in Turkish companies.Investment Management and Financial Innovations, Volume 20, Issue 4, 2023 http://dx.doi.org/10.21511/imfi.20(4).2023.22Overall, the reviewed literature underscores the significant effect of corporate governance factors on IC performance in the context of Jordanian banks.The results show the importance of board independence, ownership structure, CSR practices, and regulatory mechanisms in shaping the creation, utilization, and protection of intellectual capital.By understanding and effectively implementing these governance mechanisms, banks can enhance their intellectual capital performance, leading to improved competitiveness and sustainable growth.The purpose of this study is to investigate the effect of corporate governance factors on intellectual capital performance at Jordanian banks.H 03 : Bank profitability does not affect the link between IC and corporate governance.

Table 1
provides descriptive measures for various variables in the dataset.

Table 3 .
The study model

Table 4 .
The study model (with total assets as a control variable)

Table 5 .
The study model (with ROE as a control variable)