Business strategy, bank operation, and the role of intellectual capital development

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<b>MINISTRY OF EDUCATION AND TRAININGSTATE BANK OF VIETNAMHO CHI MINH UNIVERSITY OF BANKING</b>

<b>CHI HUU LU</b>

<b>BUSINESS STRATEGY, BANK OPERATION, AND THEROLE OF INTELLECTUAL CAPITAL DEVELOPMENT</b>

<b>DOCTORAL DISSERTATION</b>

<b>MAJOR: FINANCE AND BANKING</b>

<b>Ho Chi Minh City, 5/2024</b>

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<b>MINISTRY OF EDUCATION AND TRAININGSTATE BANK OF VIETNAM</b>

<b>HO CHI MINH UNIVERSITY OF BANKING</b>

<b>Ho Chi Minh City, 5/2024</b>

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I declare that the dissertation entitled “Business Strategy, Bank Operation, and the Roleof Intellectual Capital Development” is being written by myself under the orientations andnavigations of the academic supervisor – Dr. Thich Van Nguyen, and is my own work,which is not being submitted to every application for a specific degree before. Any citationin the dissertation has always been stated enough in the whole work and the referencessection.

Ho Chi Minh City, May 2024Signature

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First and foremost, I would like to thank the Ho Chi Minh University of Banking(HUB) in general and the Faculty of Postgraduate Education in particular due to thevaluable knowledge that I gain from participating in the doctorate program. In fact, suchknowledge has played a crucial role in assisting me to complete required thesis in theeffective ways.

At the same time, I would like to thank my academic supervisor - Dr. Thich Van Nguyen- who has given the insightful recommendations, considerations, and navigations thatcontribute to the significant improvement in the quality of my completed dissertation. It isnot exaggeration to say that the precious chance to cooperate with him has become one ofthe most useful times to assist me in further achieving new academic skills and horizons onmy own research path.

What is more, I would like to thank other colleagues who always support me even if inthe toughest circumstances. It can be said that becoming a minor member of the secondfamily

- the Institute of Scientific Research and Banking Technology, Ho Chi Minh University ofBanking – provides a window of opportunity for me to not only be buried the academicenvironment but also reach more accomplishments on the career avenue.

Last but not least, I would like to thank all members of my own family for theirconsiderable sacrifices. In fact, it seems that without their endeavors, I do have not enoughtime to learn and pursue my dreams on the academic path. Thanks to their motivations andincentives, I could confront and overcome the challenging situations in daily life and reaprich harvest of knowledge.

To end up, it is hoped that all the best would come to my own lecturers, colleagues,friends, and family. God will always be here to bless all of you.

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Leaning especially on and taking advantage of intellectual resources has beenrecognized as the effectual strategy to stay ahead of the curve in the business marketnowadays, which has witnessed a surge in increasingly fierce competitiveness.Unsurprisingly, many academicians have been enchanted to delve deep into the role ofintellectual capital in business operations of not only the firm industry, but also the bankingsector. With that in mind, the current study conducted is to explore the relationship betweenintellectual capital and financial intermediation activities as well as non-interest incomes ofbanks. Based on the data set of 26 commercial banks in Vietnam during the 2006-2020period, the regression results can be summarized as follows. First, there is a positiveassociation between intellectual capital efficiency (measured by VAIC model) and thesebusiness activities of banks. Second, when performing the VAIC-separated model, theevidence indicates that while capital employed efficiency becomes the most importantcomponent to foster financial intermediation activities, structural capital efficiency plays acrucial role in propelling non- interest incomes. It should be noted that the aforementionedfindings still withstand a battery of the robustness tests applied.

At the same time, the current analysis finds that smaller banks seemingly harness theseresources in fueling financial intermediation activities more effectively than theircounterparts, by contrast, larger banks tend to take advantage of intellectual capital moreeffectually to propel their non-interest incomes. Furthermore, structural capital efficiencyhas a positive association with non-interest incomes of both large and small banks, however,the magnitude is quite higher in the latter group compared to the former one. A similarfinding is also found when examining the relationship between capital employed efficiencyand financial intermediation of banks. In addition, the current study finds that human capitalefficiency has a negative impact on financial intermediation in the case of large banks.

Besides, other bank-specific characteristics and country-specific conditions such as thecapital ratio, total assets, earnings, and GDP growth also play a certain role in the mainconcerns of the research. It is believed that the empirical findings may have significantcontributions to shed new light on the existing theories such as the resources-based, theknowledge-led, and the IC-rooted views, and, to some extent, provide some helpfulimplications for not only managers, decision-makers of banks, but also national authoritiesas

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well as policy-makers in Vietnam. Eventually, it is hoped that the research may become an important catalyst for stimulating more works carried out in this field in the coming years.

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<b>TÓM TẮT</b>

Đặc biệt dựa vào và tận dụng nguồn lực trí tuệ (intellectual resources) được xem làchiến lược hiệu quả để đón đầu xu hướng trên thị trường kinh doanh hiện nay, nơi chứngkiến sự cạnh tranh ngày càng khốc liệt. Theo đó, khơng có gì đáng ngạc nhiên khi nhiều họcgiả say mê nghiên cứu sâu về vai trị của vốn trí tuệ (intellectual capital) trong hoạt độngkinh doanh không chỉ của ngành công nghiệp (firm industry) mà còn ở cả khu vực ngânhàng. Với ý nghĩa đó, nghiên cứu này được thực hiện nhằm tìm hiểu mối quan hệ giữa vốntrí tuệ và hoạt động trung gian tài chính cũng như thu nhập ngoài lãi của ngân hàng. Dựatrên bộ dữ liệu của 26 ngân hàng thương mại tại Việt Nam trong giai đoạn 2006-2020, kếtquả hồi quy có thể được tóm tắt như sau. Thứ nhất, tồn tại mối liên quan tích cực giữa hiệuquả sử dụng vốn trí tuệ (được đo bằng mơ hình VAIC) và các hoạt động kinh doanh này củangân hàng. Thứ hai, khi thực hiện mơ hình phân tách VAIC, bằng chứng chỉ ra rằng trongkhi hiệu quả sử dụng vốn (capital employed efficiency) trở thành thành phần quan trọngnhất để thúc đẩy các hoạt động trung gian tài chính thì hiệu quả vốn cấu trúc (structuralcapital efficiency) lại đóng vai trị quan trọng trong việc thúc đẩy thu nhập ngồi lãi. Cầnlưu ý rằng những phát hiện nói trên vẫn chịu được nhiều thử nghiệm về độ bền được ápdụng.

Đồng thời, phân tích hiện tại cho thấy các ngân hàng nhỏ hơn dường như khai thác cácnguồn lực này để thúc đẩy các hoạt động trung gian tài chính hiệu quả hơn so với các ngânhàng lớn, ngược lại, các ngân hàng lớn hơn có xu hướng tận dụng vốn trí tuệ hiệu quả hơnđể thúc đẩy thu nhập ngoài lãi. Hơn nữa, hiệu quả vốn cấu trúc có mối tương quan dươngvới thu nhập ngồi lãi của cả ngân hàng lớn và nhỏ, tuy nhiên, mức độ ở nhóm sau cao hơnkhá nhiều so với nhóm trước. Một phát hiện tương tự cũng được tìm thấy khi điều tra mốiquan hệ giữa hiệu quả sử dụng vốn và trung gian tài chính của ngân hàng. Ngồi ra, nghiêncứu còn cho thấy hiệu quả vốn nhân lực (human capital efficiency) có tác động tiêu cực đếntrung gian tài chính trong trường hợp các ngân hàng lớn.

Ngồi ra, các đặc điểm riêng biệt của ngân hàng và điều kiện vĩ mô như tỷ lệ vốn, tổngtài sản, thu nhập và tăng trưởng GDP cũng đóng một vai trị nhất định trong các mối quantâm chính của nghiên cứu. Hy vọng rằng những phát hiện thực nghiệm có thể có nhữngđóng góp nhất định nhằm làm sáng tỏ các lý thuyết hiện có như quan điểm dựa trên nguồnlực (resources-based view), quan điểm dựa trên tri thức (knowledge-led view) và quan điểmbắt nguồn từ IC (IC-rooted view), và ở một mức độ nào đó, cung cấp một số hàm ý hữu íchcho

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không chỉ các nhà quản lý, người ra quyết định của các ngân hàng mà còn cả các cơ quanquản lý nhà nước cũng như các nhà hoạch định chính sách ở Việt Nam. Cuối cùng, thật sựmong đợi rằng nghiên cứu này có thể trở thành chất xúc tác quan trọng để khuyến khíchnhiều nghiên cứu được thực hiện trong lĩnh vực này trong những thời gian tới.

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<b>LIST OF ABBREVIATIONS</b>

<b>Serial</b>

<b>No.</b>

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LIST OF ABBREVIATIONS ... vii

TABLE OF CONTENTS ... viii

LIST OF TABLES ... xi

LIST OF FIGURES ... xii

CHAPTER 1. INTRODUCTION ... 1

1.1.Research motivation and context ... 1

1.2.Main purposes of the dissertation ... 4

1.2.1.General purposes ... 4

1.2.2.Specific purposes ... 4

1.3.Research objectives and scope of the dissertation ... 5

1.4.Methodology of the dissertation ... 7

1.5.Key contributions of the dissertation ... 8

1.6.Structure of the dissertation ... 10

CHAPTER 2. THEORETICAL BACKGROUND AND LITERATURE REVIEW ... 13

2.1.Concepts of intellectual capital ... 13

2.2.Determination of the role of intellectual capital in business strategy development 18

2.3.Measure methods of intellectual capital efficiency ... 21

2.4.Theoretical background of intellectual capital ... 25

2.5.Related empirical studies in the banking industry ... 28

2.6.Hypotheses development ... 57

CHAPTER 3. METHODOLOGY ... 64

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3.1.VAIC measurement methodology ... 64

3.1.1.Calculation of VAIC model ... 64

3.1.2.Merits and demerits of VAIC model ... 69

3.2.Data and Variables ... 74

3.2.1.Sample data ... 74

3.2.2.Employed variables ... 76

3.3.Empirical Regression Models ... 81

3.4.Descriptive statistics and correlations analysis ... 85

3.4.1.Context of the Vietnamese banking system during the research period ... 85

3.4.2.Descriptive statistics and correlations ... 88

3.5.Research procedure ... 96

CHAPTER 4. EMPIRICAL FINDINGS AND DISCUSSIONS ... 100

4.1.Financial intermediation of banks and the role of intellectual capital ... 100

4.1.1.Main results ... 100

4.1.2.Robustness tests ... 106

4.1.3.Effect of bank size ... 115

4.1.4.Discussion of the findings ... 118

4.2.Non-interest incomes of banks and the role of intellectual capital ... 120

4.2.1.Main results ... 121

4.2.2.Robustness tests ... 126

4.2.3.Effect of bank size ... 135

4.2.4.Discussion of the findings ... 138

CHAPTER 5. CONCLUSIONS AND IMPLICATIONS ... 144

5.1.Conclusions ... 144

5.2.Practical implications ... 147

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<b>LIST OF TABLES</b>

Table 2.1. Some definitions of IC and its components...15

Table 2.2. Some measure methods of intellectual capital efficiency...22

Table 2.3. The summary of related studies on the role of IC in the existing literature...34

Table 3.1. Variables definitions...80

Table 3.2. Variables descriptive statistics...89

Table 3.3. Correlation matrix...92

Table 3.4. Multicollinearity test ...95

Table 4.1. Baseline multivariate analysis...104

Table 4.2. Robustness tests...109

Table 4.3. GMM approach...113

Table 4.4. The role of bank size ...117

Table 4.5. Baseline multivariate analysis...124

Table 4.6. Robustness tests...129

Table 4.7. GMM approach...133

Table 4.8. The role of bank size ...137

Table 4.9. Summary of hypothesis testing results...141

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<b>LIST OF FIGURES</b>

ingredients of IC ...14

Figure 2.2. The role of IC in business strategy map...20

Figure 2.3. The illustration of the ways IC fuels financial intermediation activities and

non-interest incomes of banks...28

Figure 3.1. The major resources in promoting value-added creation...65

Figure 3.2. The ways to construct the VAIC calculation...69

Figure 3.3. The economic backdrop of Vietnam...86

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<b>CHAPTER 1. INTRODUCTION1.1. Research motivation and context</b>

It could be said that today’s world has faced increasing threats of the poly-crisis such asthe disruption of the global supply chain, soaring energy prices and inflation rates, andgeopolitical risk (Lu & Luong, 2022; Phan et al., 2022b; Yusoff et al., 2019). This prospectunderscores that most organizations have to find effective ways to sustain their buoyantmarkets. In this case, tapping into knowledge-based resources can be seen as an essentialpreparedness to open new roads for modern companies because it assists an organization inachieving competitive advantage and stable development (Alvino et al., 2020; Suciu &Năsulea, 2019). This assertion is also true in the banking industry, which usually dependsmuch on intellectual resources rather than physical capital to provide suitable products andservices to fulfill the changing needs of their customers and succeed in competitiveness(Adesina, 2019). To some extent, intellectual capital (IC) may be an effective signal toevaluate the degree of banks’ performance compared with their rivals (Meles et al., 2016;Stewert, 1999).

Unsurprisingly, scholars and regulators have recently paid much attention toimplementing IC in banking operations. While the number of studies in this field hasfocused mainly on the correlation between IC and banks' productivity (e.g., Alhassan &Asare, 2016; Yalama, 2013; and among others), IC and one’s profitability (e.g., Le &Nguyen, 2020; Poh et al., 2018; and among others), IC and ones’ risks (e.g., Dalwai et al.,2021; Nguyen et al., 2021; and among others), or technical, allocative and cost efficiencies(e.g., Adesina, 2019; Le et al., 2022), the aspect of financial intermediation in the bankingsystem as well as the link between IC and one of the most critical aspects in bankingoperations, namely total non- interest incomes, seem to remain an undiscovered area.

With that in mind, this research is to tackle the key issue of whether the implementationof IC has fostered the financial intermediation and total non-interest incomes in the bankingsystem or not. In this sense, Vietnam may provide one of the ideal countries for finding aclear answer and filling this vital gap in the literature for the following reasons.

Vietnam's economic growth has witnessed a fast pace in the ASEAN region, and it ishoped that this country will be the next tiger in Asia (Le, 2021; Le & Nguyen, 2020).

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According to the statistics from World Bank Data, from 2006 to 2019, the GDP growth ofVietnam nearly stood at an average of around 6.5% before dropping to about 2.9% in 2020due to the adverse consequences of COVID-19. Notwithstanding, since the financial marketseems to remain undeveloped, sustainable economic growth and development have reliedmainly on the effective operations of the banking system, which is also deemed as thebackbone of the Vietnamese economy (e.g., Le et al., 2022; Le & Nguyen, 2020; Phan et al.,2022b).

The statistics revealed by World Bank Data illustrate that the economic indicators ofdomestic credit over the private sphere supported by banks jumped from about 65% to over116% during the 2006-2020 period. This remarkable escalation means that the developmentof the banking sector plays an imperative role in ensuring and fostering the growth of theVietnamese economy. Therefore, growing financial intermediation activities have becomeone of the significant factors in ensuring sufficient economic resources and sustaining thedeveloping economy. Additionally, the Vietnamese banking market may become fiercelycompetitive, resulting from the appearance of foreign banks, followed by participating in theWorld Trade Organization in 2007 (Huynh & Dang, 2021; Le & Nguyen, 2020; Phan et al.,2022a).

Consequently, domestic banks have to find new ways to adapt to changing conditions.In this regard, digging more into intellectual resources may be an underlying businessstrategy to thrive in their business activities. Indeed, it is witnessing an increasing evolutionfrom the traditional paradigm of strategy to the knowledge-based paradigm, which deems ICas the driving force of sustainable value creation and sustainable competitive advantage(Alvino et al., 2020; Khan et al., 2019; Marr & Roos, 2012). In this case, the businessstrategy construction of Vietnamese banks is not the exception, and hence, managers anddecision- makers in domestic banks cannot ignore IC perspective in both building theirbusiness strategy and managing business operations.

On the other hand, as Greenbaum et al. (2019) implied, banks traditionally act asfinancial producers and servicers; they are regularly forced to provide up-to-date products tosatisfy their customers' demands, by which they can flourish in today's economic climate.Such this scenario underlines the primary driver of IC in generating effective remedies forthese requirements. In short, discovering the link between IC and financial intermediationin the

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banking industry would be a requisite study for not only the Vietnamese banking sector butalso other emerging countries where the sound operations of banks are seen as theprerequisite for economic development.

In addition, the dissertation opts for non-interest incomes as the key objective toexplore the effect of IC on the business operations of banks for some main reasons. First andforemost, the transformation from traditional incomes into non-interest incomes, includingcommissions, fees, and trading incomes, is seen as one of the essential strategies driving theoperations of banks in the modern economy these days (Bian et al., 2015). Indeed, the shifttowards non-traditional sources of income could bring certain benefits for banks, fromreducing risk and funding costs (Tran, 2020) to enhancing profitability (Mostak Ahamed,2017). Furthermore, in tandem with the endeavors to ensure the smoothness andsustainability of the banking sector, some policies have been carried out by the Vietnamesegovernment to motivate domestic banks to further widen their businesses into new areas toseek out new sources of income, leading to enlarge the non-interest income activities ofbanks (Dang, 2020; Huynh & Dang, 2021). This direction is also quite suitable to thecontext of increasing intensive competition in the bank market which emerges newcomerssuch as foreign banks, Fintech firms, and other non-bank institutions (Le & Nguyen, 2020)(see more detail in subsection 3.4.1 of Chapter 3). As a result, taking advantage of IC maybecome an appropriate business strategy for banks to thrive in such situation in the comingtimes.

At the same time, such this orientation has required banks to possess necessarycapabilities of technology, expertise, and human resource (Mostak Ahamed, 2017). In thisvein, the emergence of IC would become the bridge to fill these preconditions. In addition,to deal with the aftermath of the global financial crisis, operations of the banking industry inparticular and the financial system, in general, have been constrained by tighter regulationsbecause such financial deregulation may encourage banks to join more casino-stylegambling, leading to growing instability (Tran, 2020). Hence, banks have to navigate theirbusiness strategies beyond traditional activities to achieve higher profitability. This situationhighlights the vital role of both IC and non-interest incomes in banks; thus, discovering thecorrelation between these factors would provide a major insight into banking operations,especially in emerging markets where the banking system is considered the backbone of theeconomy.

<i>Taken together, it is hoped that the dissertation, namely “Business strategy, bank</i>

<i>operation, and the role of intellectual capital development” will may shed new light on the</i>

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Moreover, other effort of the writer is to explore the extent to which the differentcomponents of IC exert both financial intermediation activities and non-interest incomes ofthe Vietnamese commercial banks.

In addition, the study also evaluates the role of the bank size factor in the link betweenIC, its components, and financial intermediation as well as the nexus between IC, itscomponents, and non-interest incomes of the Vietnamese commercial banks.

Eventually, by leaning on the empirical findings, the present research endeavored topropound some major implications under both theoretical and practical views for not onlyacademicians but also policy-makers as well as banking leaders.

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To reach clear explanations for these major concerns, the dissertation would performan empirical investigation to find out the evidence. In particular, the author would examinethe impact of intellectual capital on total non-interest incomes as well as on financialintermediation activities of banks. Due to the importance of these business operations, thefindings in the dissertation would provide the implications for multi-stakeholders inVietnam and, perhaps, other emerging countries, especially against the backdrop ofincreasingly fierce competition resulting from the technological era.

<b>1.3. Research objectives and scope of the dissertation</b>

<i>For the research objectives of the dissertation, as mentioned previously, the study</i>

would emphasize the role of intellectual capital in business operations of commercial banksin Vietnam, specifically the non-interest incomes and financial intermediation activities. Ashighlighted in subsection 1.1, these research objectives are selected as the chief purposes ofthe dissertation since they may play an essential role in building business strategies of localbanks as well as the growth of economy in Vietnam these days.

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First of all, as an emerging country, the economic growth in Vietnam nearly dependson the expansion and sustainable development of the banking system (e.g., Le et al., 2022;Le & Nguyen, 2020; Phan et al., 2022b). Hence, the evaluation of the impact of intellectualcapital on the financial intermediation of domestic banks would provide a deep insight intoone of the main engines for the expansion of banking activities and economic growth inVietnam.

In addition, the transformation from traditional incomes such as lending interests intonon-traditional incomes may become one of crucial business strategies of banks against thebackdrop of increasingly competitive market resulting from the emergence of foreign banks,rapid changes in technological innovation, tightening regulations, and so on (e.g., Bian etal., 2015; Huynh & Dang, 2021; Mostak Ahamed, 2017). Therefore, the investigation intothe role of intellectual capital in these operating aspects of banks may bring beneficialvalues to bank managers. Taken together, these reasons have necessitated conducting theresearch to point out the correlations between implementing IC and both non-interestincomes and financial intermediation strategies of domestic banks in Vietnam.

In this regard, the research scope of this study would focus on some main items asfollows:

<i>For the space scope of the thesis, the author would concentrate on the domestic banks</i>

in Vietnam. The financial information of each bank would be gathered from the auditedfinancial statements and the notes to the financial statements. There are some main reasonswhy the research has focused mainly on commercial banks in Vietnam to carry out theempirical investigation. First, it allows the current analysis to achieve a relativelyhomogenous research sample (Adesina, 2019). At the same time, it is argued that comparedwith commercial banks, joint-venture and foreign-controlled ones seemingly account for arelatively small proportion (Huynh & Dang, 2021). Meanwhile, the business operations ofnon-profit banks seemingly differ from commercial banks (Huynh & Dang, 2021). Takentogether, the current research will pay special attention to commercial banks to conduct theempirical analysis.

<i>For the time scope of the thesis, the author would select the study period spanning</i>

from 2006 to 2020. The period is chosen because it has witnessed many changes in thebanking system in Vietnam, including regulations, structures, the emergence of foreignbanks, and technology-based orientations (e.g., Huynh & Dang, 2021; Le & Nguyen, 2020;Phan et al.,

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2022a; Phan et al., 2022b; Tran, 2022). At the same time, many prominent events haveemerged during the same period in the Vietnamese economy (see the detailed analysis inChapter 3). Thus, to some extent, the findings would draw the general picture of the role ofIC in banking operations, specifically non-interest incomes and financial intermediationactivities

.

<b>1.4. Methodology of the dissertation</b>

In order to tackle the aforementioned concerns and achieve the research objectives, thecurrent research has opted for the quantitative methodology to figure out the extent to whichIC efficiency as well as its elements exert the financial intermediation activities and totalnon- interest incomes of banks.

More specifically, the study utilizes the database of 26 domestic banks in Vietnamduring the 2006-2020 period. Also, many different regression approaches are performed,including OLS, Fixed-time effect, and GMM estimation, as well as controlling specificcharacteristics of banks and macro conditions. These approaches are still important becausethey can help to ensure that the research findings withstand various robustness testsconducted. It is true that the empirical results of the dissertation still survive after therobustness test stages are being employed, meaning that the findings are quite feasible andplausible. Also, the research sample divided into different subsamples based on the banksize will be examined to provide an understanding of the role of IC in both large banks andsmall ones.

At the same time, the dissertation utilizes the prior findings of previous authors in theexisting literature to calculate the main explanatory variables including IC efficiency and itsingredients as well as to build the empirical models. Accordingly, to estimate the ICefficiency of domestic banks, following many extant studies (for example: Adesina, 2019;Le et al., 2022; Nguyen et al., 2021; Ozkan et al., 2017; Poh et al., 2018, and among others),the study employs VAIC model (the value-added intellectual coefficient model) propoundedand developed by Pulic (1998, 2000, 2004). At the same time, VAIC is being separated intothree main ingredients being capital employed efficiency (CEE), human capital efficiency(HCE), and structure capital efficiency (SCE) to evaluate the impacts of these components.Additionally, the pros and cons of this approach are analyzed clearly and the reasons whythe

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bank-Besides, regarding the first dependent variable, financial intermediation in banks,although there are certain debates on measuring financial intermediation, the ratio of totalloans to total deposits is still popular in the banking literature (Boďa & Zimková, 2021).Some existing views scrutinize that macroprudential policies should be built around this

<i>“descriptive indicator” (Satria et al., 2016; Van den End, 2016). In this research, this</i>

indicator will be used as the first dependent variable in the analysis models. In addition,regarding the second dependent variable, the current study will use the (natural logarithmof) total non- interest incomes (NII) of banks to estimate non-interest incomes of banks,which may mirror most of the non-interest sources of income of banks, from relevant feesand commissions to trading securities, in a direct and absolute way (Phan et al., 2022a; Phanet al., 2022b). Hence, this indicator will be applied as the second dependent variable in theanalysis models.

<b>1.5. Key contributions of the dissertation</b>

The research is anticipated to contribute to the knowledge gap in this field in thefollowing ways.

i) Regarding the theoretical view, first and foremost, to the best of the writers' horizon,the research can be seen as the first empirical investigation into the correlationbetween IC and banks' financial intermediation as well as the non-interest incomes, atleast in the Vietnamese context and perhaps, other developing countries. Indeed, thevast majority of related papers emphasize the connection between IC and somebusiness aspects such as productivity, profitability, risk-taking, or technical,allocative, and cost efficiencies (Adesina, 2019; Le et al., 2022; Le & Nguyen, 2020;Meles et al., 2016; and among others), the research makes a difference to the extantstudies by digging

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iii) In addition, as the research conducted by Poh et al. (2018) indicated, different resultswhen investigating the impact of IC in the banking industry may come from variousmeasures of banking performance and periods chosen. By selecting financialintermediation activities and non-interest incomes as the main research objectivesalong with the period covering from 2006 to 2020, the author would dig more intothe impact of IC on various dimensions of business operations in banks, andtherefore, the author adds more illumination to prior findings such as Le et al. (2022);Le & Nguyen (2020); Nguyen et al. (2021); Poh et al. (2018) and among others.iv) Besides, the findings of the dissertation also give helpful evidence to shed new light

on some important theories such as the resource-based theory, the intellectual capitaltheory and the knowledge-based theory that underscore a crucial aspect ofimplementing IC in business management of enterprises these days to stay ahead ofthe curve in the increasingly intensive competition. In other words, the results in theresearch will contribute to the profound understanding about various theoreticalstudies in the IC field such as Dierickx & Cool (1989); Harris (2000); Khalique et al.(2013); Penrose & Penrose (2009) and among others.

v) Under other related angle, the dissertation conducted is to respond to the previouscalls of Alvino et al. (2020); Suciu & Năsulea (2019); Vătămănescu et al. (2019) whoassert that the urgent need to explore more impacts of IC on different aspects inbusiness operations of modern enterprises. Because the center role of IC isincreasingly recognized in both academic and practical perspectives, the empiricalexamination of the study will provide the compelling evidence in advocating thisassertation.

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vi) Last but not least, because the transformation from traditional incomes to traditional activities is seen as the necessary step in constructing business strategies,and implementation of IC may be the key to opening up new roads for domesticbanks in the coming future, the findings would provide certain implications forscholars and regulators in Vietnam and perhaps in other developing markets. On theother hand, while the expansion of financial intermediation activities can be seen asthe key of banking operations, supporting the allocation of the economic resourcesand fueling the economic growth of Vietnam, based on the findings, the study willprovide productive implications for managers in navigating and expanding theseactivities.

<b>non-1.6. Structure of the dissertation</b>

As mentioned before, this chapter focuses on some main points including themotivations, the research objectives, the research questions, the approached methodology,and the key contributions of the dissertation. In the following chapters, the current studywill detail these contents. In general, the outline of the study can be summarized as follows.

<i>Chapter 2, namely ‘Theoretical background and literature review’, will first provide the</i>

concepts and the measure methods of intellectual capital. The mentioned information isquite important because it helps to shed light on the ethos, the definition, and the valueembedded into IC that many theorists have endeavored to discover. At the same time, itshows clearly the ways numerous methods developed are to offer a precise quantification ofIC performance in the extant literature. After that, this chapter also analyzes the theoreticalbackground and the relevant studies in the banking industry, which in turn will assist todevelop the related hypotheses. Basically, this chapter is expected to create the importantbackbone to gain more knowledge about the research trend in the concerned field as well asindicate the research gap that the dissertation can extend and fulfill. At the same time, it cangive a strong theoretical background that helps to verify the main concerns of the study andvalidate the research orientation as well as performed approaches.

<i>Chapter 3, namely ‘Methodology’, will depict the detailed approaches to address the key</i>

issues of the dissertation. Accordingly, the chapter first discusses the methodology of theVAIC model and illustrates its detailed calculation as well as the computation of itscomponents. Also, the pros and cons of this approach are also analyzed. Since this model isbeing applied in the study as the main explanatory variable to evaluate the role of ICefficiency

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or value-added creation in banking business operations, analyzing this information will helpto provide a deeper insight into how VAIC still stands out in the existing literaturecompared with other measures proposed, why it is being opted for as the prevalent means toestimate IC efficiency by enormous academicians, although it obtains a variety ofdrawbacks, and how to formulate its components. Afterward, this chapter will giveinformation in a minute way about the data collected, the variables employed, the empiricalmodels performed, and the various stages in performing robustness tests. Besides, thebackdrop of the research period is also underlined to emphasize the reasons why it is chosenand so important before analyzing descriptive statistics and correlation between employedvariables.

<i>Chapter 4, namely ‘Empirical findings and discussions’, will illustrate the empirical</i>

results of the dissertation based on the methodology presented in the previous chapter. Bycomparing with theoretical views and other empirical studies, the chapter will not onlydelineate the main findings but also give detailed explanations about the role of IC in thebanking operations of domestic banks. It can be said that the results illustrated in the chapterwill provide a clear answer to the aforementioned research questions.

<i>Chapter 5, namely ‘Conclusions and implications’, will summarize the general findings</i>

of the dissertation based on the results analyzed in the previous chapter. At the same time,by relying on these conclusions, the chapter will propose some main implications underboth theoretical as well as practical perspectives which may be helpful for both managers,decision- makers, and researchers in Vietnam and perhaps other emerging countries.Besides, the chapter highlights some drawbacks of the dissertation and suggests a variety offuture research directions. Generally, it is hoped that future scholars can fulfill theselimitations as well as pay new paths in this research area.

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<b>Brief Summary of Chapter 1</b>

In Chapter 1, the current research has drawn the whole picture of the dissertation inwhich the research orientation and navigation underlined are to provide a concretebackground for reaching a detailed explanation of the chief concerns. In this light, thechapter may help readers understand the main purposes, the research objectives, the context,and the research questions that the dissertation will concentrate on. It can be said that thefirst chapter will provide the first key to open the next doors throughout the current study.The next chapters will detail the following steps to achieve a clear answer about the researchobjectives.

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<b>CHAPTER 2. THEORETICAL BACKGROUND ANDLITERATURE REVIEW</b>

<b>2.1. Concepts of intellectual capital</b>

In today's world, economists tend to have a general consensus on the central role ofintellectual capital in supporting organizations to gain competitiveness and achievesustainable growth, especially against the backdrop of a fiercely competitive businessenvironment, rapid changes in technological innovations, and global challenges (e.g., Khanet al., 2019; Kweh et al., 2022; Suciu & Năsulea, 2019; Vătămănescu et al., 2019). In theearly stage, the definition of IC has been paid special attention by many economistsworldwide. According to Khalique et al. (2013), the first interpretation is produced by JonKenneth Galbraith in 1969. However, Harris (2000) suggests that Schultz was the firsteconomist who introduced the clarification of IC and the economic values of IC in 1963.

Even though there are certain debates about the definitions, classifications of IC, and themeasures of IC in the existing literature, it is widely recognized that in the knowledge-basedera, IC is deemed as the indispensable ingredient in the business strategies of anyorganization. Indeed, although there are certain differences between researchers ininterpreting IC in literature, in general, IC is seen as one of the intangible assets to fuel theoperations of companies (Ghosh & Mondal, 2009; Mondal & Ghosh, 2012), as one of themain resources to enhance competitive advantage, firm value, the confidence ofstakeholders, and sustain economic growth (Caputo et al., 2016; Jardon & Martínez-Cobas,2019), as one of the reliable sources to ensure prosperity and well-being of individuals,corporations, and countries (Alvino et al., 2020; Suciu and Năsulea, 2019).

At the same time, IC has regularly included three main components: human capital,structural capital, and relational capital (Adesina, 2019; Le & Nguyen, 2020; Meles et al.,2016; Ozkan et al., 2017; Poh et al., 2018). Accordingly, the interpretation of human capitalusually involves the competence of people in an organization, such as skills, experiences,knowledge, and so on. Meanwhile, the definition of structural capital is related to a firm’sfabric, business strategies, policies, and so on. By contrast, the last component, relationcapital closely involves extrinsic factors, including clients, suppliers, and relevantstakeholders.

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Figure 2.1 below presents the heart role of value creation that is blended from threeclassifications including human capital, structural capital, and relational capital together.Besides, Table 2.1 illustrates a variety of definitions related to intellectual capital and itscomponents in the existing literature.

<i>Source: Based on the prior studies conducted by Edvinsson & Malone (1997); Harris,(2000); Stewart & Ruckdeschel (1998)</i>

<b>Figure 2.1. The illustration of the value-added creation springing from the three mainingredients of IC</b>

As Figure 2.1 illustrates, the value creation is of the interested concern of enterprises,being the blended and integrated relationships and close connections between three majorintangible assets: human capital, relational capital, and structural capital. In this light, themore interconnected between these elements, the more maximized value space (Pew Tan etal., 2008). According to Edvinsson & Malone (1997), the firm value only results from the

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whole combination of all three elements, meaning that by concentrating on one or two ofthese elements and neglecting the rest of them, a firm cannot optimize the value-addedassets.

Hence, it is argued that these factors or intellectual resources can be seen as theunderlying preconditions and foundations that are essential to perform business and gaincompetitive leverage (Harris, 2000).

<b>Table 2.1. Some definitions of IC and its components</b>

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<b>The author(s)The propounded definitions</b>

Edvinsson &1

Intellectual capital is deemed as the non-physicalappearance. However, it could bring certain values to afirm. Intellectual capital obtains valuable substances suchas experiences, knowledge, IP (intellectual property), andinformation. A company could harness these valuablematerials to build wealth and prosperity.

Intellectual capital has been knowledge that, in turn, couldbe transformed into the profitability of an organization.Intellectual capital can be seen as a new resource whichassist firms in reaching new achievements on businesspath. Intellectual capital has been the discrepancy betweena company's market and book values. At the same time,intellectual capital is the resource that will assist acompany to sustain competitive advantages.

Intellectual capital is depicted as intangible or non-physicalassets that a company can gain value and advantageouscompetition from these resources.

Intellectual capital is seen as an invisible activityconsisting of the capability of individuals in learning,namely the human capital, an organizational culture knownas the structured capital, and the interactions with extrinsicfactors named the relation capital.

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8 ^Zéghal ^&Maaloul (2010)

Intellectual capital is defined as the total of all knowledgethat an organization can harness effectively in performing business operations to value-added creation.

The interpretation of human capital is related to thecapabilities of employees in solving many problems inenormous circumstances that would ultimately generatetangible as well as intangible assets of companies.

Relational capital is identified as the value stemming from individuals and organizations that have relations with acompany in selling and buying. In other words, this factor is

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usually related to multi-stakeholders such as customers,suppliers, and other relevant stakeholders.

Relational capital is the combined relationships with the external world that would comprise clients, financialinstitutions, stakeholders, and other agents.

Năsulea (2019)

Human capital is the factor reflecting the capabilities ofindividuals in a company. It regularly consists of the skills,experiences, and knowledge of all people in anorganization.

Structural capital is the factor that emphasizes intrinsicknowledge such as policy, strategy, and structure of acompany.

Relational capital is the factor related to a firm's extrinsicrelationships, such as clients and stakeholders.

<i>Source: The author collects from the extant literature</i>

In short, it is an undeniable fact that operating in the technology-led and based era, most organizations cannot neglect the role of intellectual resources inconstructing business strategies, especially when the competition has been souring and theuncertainty has become more unpredictable. This argument is reflected in the scientificendeavors of scholars to codify the role of IC throughout the existing literature.

knowledge-Indeed, based on the existing definitions in the literature and to the limited abilities ofthe author, it can be concluded that there are the great efforts to identify the concept of IC,however having certain differences in interpreting IC’s definition as well as its elements,depending on the different disciplines and various angles, such as finance and accounting,economics and strategies, marketing and communication, and so on (Le et al., 2022; Le &

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Nguyen, 2020). Furthermore, reaching a whole consensus on IC’s interpretation tends to bethe inconclusive debate in the extant literature (Bayraktaroglu et al., 2019; Nazir et al.,2021).

Similarly, the definitions of IC’s elements, and perhaps their names, have been stilldifferent, but many existing studies have classified IC into three main categories consistingof human capital, structural capital, and relational capital, also called physical capital orcapital employed (e.g., Andriessen & Tissen, 2000; Nielsen et al., 2006; G. Roos & Roos,1997; Stewart & Ruckdeschel, 1998; Sveiby, 1997; and among others). Accordingly, humancapital is mostly involved the intellectual prowess of individuals in an organization and itcan be lost when employees leave companies. In contrast to this element, structural capital ismainly engaged with policies, strategies, cultural aspects, possessed by firms. Meanwhile,contrary to the first two elements, relational capital is totally related to the external factorssuch as multiple stake-holders.

<b>2.2. Determination of the role of intellectual capital in business strategydevelopment</b>

Historically and conventionally, both academicians and managers have endeavored tofind out a clear reason why some businesses perform better while others do not. The evidentanswer to this question may provide the key to opening new paths in managing the businessstrategy of firms (G. Roos, 2005). Based on the theory of business strategy in the extantliterature, the aim of this subsection is to highlight the vital role of IC in constructingbusiness strategy of firm industry in general and banking industry in particular.

First of all, it is necessary to understand the meaning of “strategy” that a business leanson. Theoretically, G. Roos (2005) has identified “strategy” is seen as a series of approachesthat assist businesses in accomplishing specific goals. This author also underscores that theformulation of strategy will depend specifically on the inventiveness coming from thehuman mind, while the action of strategy is to reach the strategic compromise betweenbusiness goals and environmental requirements, suggesting that selling products andservices has to meet demands of end-users. Previously, Andrews (1997) considers thatstrategy of corporate can be seen as a mechanism of decision-making that helps to clarifythe purposes, policies, as well as plans by which companies can reach their business goals.From the view of this author,

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strategy brings significant contributions (both economic and non-economic values) tomultiple stakeholders.

Now, a question is that why the level of profitability tends to be different betweencompanies, regardless of whether they operate in a same area. Looking carefully at the waveof business strategy development, it is argued that there are generally two main perspectivesby which strategy may rely on (Marr & Roos, 2012). Accordingly, the first perspective is tofocus mainly on the power of market, while the second one is to emphasize the efficiency ofinternal resources.

<i>The former view of business strategy, namely “the paradigm of market power”, is seen</i>

as the conventional strategy model leaning specifically on the power of market. From thisperspective, benefits a firm achieves may spring from the interaction of five major forcesincluding the level of power that buyers have, the level of substitutes for both products andservices, the level of power that suppliers possess, the capacity of entry into market, and thelevel of existing competition (Porter, 1980). These forces are stronger meaning that theprofitability of a company will be lower (Marr & Roos, 2012; G. Roos, 2005). The mainargument of this view is that the fundamental difference in benefits of companies may comefrom the ability of barriers construction, also named “mobility barriers”, which will assistsuccessful companies in protecting from imitation of their strategic models (Caves & Porter,1977; Hatten & Hatten, 1987; Marr & Roos, 2012). In this light, the issue that may occur ishow to create a set of forces to construct these barriers. Rexhepi et al. (2013) suggest thatthe answer may result from harnessing the intellectual capital of an enterprise when buildingbusiness strategy, especially in industries relying much on this capacity such as educationaland financial institutions.

<i>The latter view of business strategy is known as “the paradigm of resource-based</i>

<i>model” is proposed and developed by some resource-rooted theorists such as Penrose &</i>

Penrose (2009); Wernerfelt (1984). This paradigm explains that the distinction ofprofitability may originate from the valuable resources that companies possess and the waythey employ these resources. Also, from this view, both resources and capacities are deemed

<i>as “the strategic assets” of enterprises. The more strategic assets applied to a huge number</i>

of products and services, the higher benefits an organization can achieve (Prahalad &Hamel, 2009). However, it is argued that these resources and capacities cannot themselvesproduce

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value-added creation (Penrose & Penrose, 2009), hence, to create value, they have to beembedded into the both products and services that companies offer (Marr & Roos, 2012; G.Roos et al., 2001). Such this sense has underscored the center role of IC in business strategy,because by leaning especially on IC view, the resources can be used effectively andcompanies can determine the way to which value-added creation (G. Roos, 2005; G. Roos etal., 2001).

To illustrate this issue clearly, it should take the business operations of banks as atypical example. G. Roos (2005) describes banks serve as conduits between clientele whoneeds financial support and a group of customers can fulfill this financial gap. In this vein,banks have to organize the cash flow appropriately to balance demands of both types ofthese customers. To perform this task well, banks have to transform various kinds ofintellectual resources into effective remedies and solutions that will satisfy their clients. G.Roos (2005) also concludes that possessing valuable resources is not yet enough, instead,banks have to put these resources to value-added creation.

<i>Source: Based on the strategy map constructed by Kaplan & Norton (2000, 2004)</i>

<b>Figure 2.2. The role of IC in business strategy map</b>

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As Figure 2.2 illustrates above, the strategy map developed by Kaplan & Norton (2000,2004) has depicted the causal connection between IC drivers and the performance oforganizations, indicating the fundamental role of IC in constructing business strategy. Inother words, the strategy map shows clearly the way by which IC can drive organizationalobjectives and outcomes of organizations. These authors believe that by understanding thereadiness of strategic assets, decision-makers can constitute strategic objectives. In short, itis clear that by using intellectual capital, the resources of organizations can be transferredinto the end products and services which, in turn, will distribute organizational values (Marr& Roos, 2012).

In conclusion, along with the dramatic changes in business conditions, the strategyconstruction of an organization has to be adapted to suit the market needs, and the businessperception of the pivotal role of IC in driving value-added creation also grows gradually(Marr & Roos, 2012; G. Roos et al., 2001). Indeed, approaching business strategy hasevolved from the conventional paradigm to strategic assets model, in which, IC has emergedas the key engine for performance outcomes, strategic objectives, and sustainable value-added creations of most companies (Alvino et al., 2020). Therefore, leaders and managers inbanks cannot neglect this pivotal factor in their business strategy construction.

<b>2.3. Measure methods of intellectual capital efficiency</b>

In tandem with the persistent attempt to explain the concept and the strategic vehicle ofIC as discussed above, it is also witnessed the numerous academicians have put theircontinuous energies into seeking out clearly the effective measure of IC efficiency. It can besaid that due to the core role of IC in companies' business strategies and operations, itsmeasurement has attracted many researchers in the financial sector and the existingliterature as a whole.

The urgent need to measure IC efficiency also originates from the realistic businessstrategies of firms that desire to manage IC in effective ways and disclosure this informationfrequently because, as the assertion of Bayraktaroglu et al. (2019), managers only manageand control anything that they entirely measure. In other words, “when you can measurewhat you are speaking about and express it in numbers, you know something about it”(Liebowitz & Suen, 2000). These arguments have underscored the pivotal part ofmeasuring IC in

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business strategies of enterprises, leading to the fervent desires for conducting andpropounding the effective measurement of IC in numerous disciplines.

In this vein, various measures have been invented and developed in the extant literaturethroughout the recent decades. In fact, over 42 methods have been developed to estimateintangible assets in the preceding literature and this figure may likely arise (Nazir et al.,2021). Some emblematic methods may include Tobin's Q ratio, the economic value-addedindicator, the intellectual capital index, the inclusive value methodology, VAIC model,adjusted/modified/extended-VAIC model and among others.

Table 2.2 below states a variety of the typical measure methods of intellectual capitalefficiency in the extant literature.

<b>Table 2.2. Some measure methods of intellectual capital efficiency</b>

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<b>The author(s)The name of propounded measure</b>

Stewart & Ruckdeschel5

María Viedma Marti (2001,13

The intellectual capital benchmarkingsystem

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16 Bounfour (2003) ^{The intellectual capital dynamic value}dVAL approach)

Chang & Hsieh (2011);Phusavat et al. (2011);

Chen et al. (2005);Phusavat et al. (2011);Vishnu & Gupta (2015)

The extended (or additional) VAIC model

<i>Source: The author collects from the extant literature</i>

In the early stage, K.-E. Sveiby & Lloyd (2010) and Luthy (1998) categorize theintangible measurement methods into the major four categories including ‘direct intellectualcapital methods’, ‘market capitalization methods’, ‘ROA methods’, and ‘scorecardmethods’. These categories can be summarized as follows.

The first category is directly connected with the aspect of “dollar value” coming fromintangible resources, which is estimated by codifying its elements. The second involves thecalculation of IC’s value through computing the difference between the marketcapitalization and the book value of the equity. The third uses the ROA indicator tocalculate the average annual earning springing from intangible assets. The final is related tomany indices developed from various components of IC to estimate IC’s value, but thisapproach does not evaluate the economic aspects like the first category.

Meanwhile, according to Bayraktaroglu et al. (2019) and Pew Tan et al. (2008), theexisting methods of IC measurement can be classified into the two major kinds consisting ofthe non-financial calculation or “non-dollar valuation” and the financial calculation or“dollar valuation”. These both approaches have naturally embraced both merits anddemerits. As the given names of these categories suggest, while the former does notestimate the dollar valuation of IC, the latter gives the estimation of the dollar valuation.

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Some methods in the former group may include the Skandia intellectual capitalnavigator, intellectual capital index, balanced scorecard, and among others. In this line,Kaplan & Norton (1996) can be seen as the typical pioneers trying to propose the ICmeasurement. The authors develop the balanced scorecard as the model to formulate IC,allowing managers to manage the cause-and-effect connections between intangible assetsand business performance through the four views: customer, internal process, finance, andlearning & growing.

Even though this model seems to be in line with the firm-specific view, it may not beapplied in general because it may not evaluate the financial value of the intellectualresources (Pew Tan et al., 2008). Hence, many methods have attempted to address thislimitation, and different measures are being proposed. Among of them, most scholarsreadily consent that Skandia intellectual capital navigator is deemed as the measurementthat provide a wide range of aspects to formulate IC, especially the role of customerrelationships in the value-added creation (Bontis, 2001). Accordingly, this approachembraces around 112 indices reflected in five angles: customer, finance, human, process,renewal and development. However, this method does not evaluate dollar values of IC.

To sum up, the non-financial perspective allows researchers and managers to determinethe what type of IC components and their impacts on business operations of firms, but itdoes not help to formulate the economic values of intangible assets (Bayraktaroglu et al.,2019).

On the other hand, the financial perspective such as the economic value added, Tobin’sQ, VAIC model, and extended-VAIC model, has focused mainly on the economic value ofintangible assets that an organization owns, hence it enables both scholars and businessleaders to evaluate IC’s performance and compare it to rivals (Bayraktaroglu et al., 2019).

For instance, the economic value added capturing many variables including financialplan, performance, budget, shareholder communication, and incentive compensationemphasizes the maximation of earnings over costs. However, one of this method’sdrawbacks is that it leans much on historical expenses that does not capture immediately thecurrent market value (Bontis, 2001; Pew Tan et al., 2008).

Another compelling method is the value-added intellectual coefficient (VAIC) model ofPulic (1998, 2000), which is seen as a relatively simple to calculate and is widely used in thepreceding literature (Adesina, 2019; Nazir et al., 2021). As a claim by Poh et al. (2018), the

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