Description
The purpose of this paper is to investigate if the effectiveness of board meetings moderates
the relationship between board diversity (in terms of educational level and nationality) and intellectual
capital (IC) performance.
Accounting Research Journal
Board diversity and intellectual capital performance: The moderating role of the
effectiveness of board meetings
Mahfoudh Abdul Karem Mahfoudh Al-Musali Ku Nor Izah Ku Ismail
Article information:
To cite this document:
Mahfoudh Abdul Karem Mahfoudh Al-Musali Ku Nor Izah Ku Ismail , (2015),"Board diversity and
intellectual capital performance", Accounting Research J ournal, Vol. 28 Iss 3 pp. 268 - 283
Permanent link to this document:
http://dx.doi.org/10.1108/ARJ -01-2014-0006
Downloaded on: 24 January 2016, At: 20:51 (PT)
References: this document contains references to 69 other documents.
To copy this document: [email protected]
The fulltext of this document has been downloaded 381 times since 2015*
Users who downloaded this article also downloaded:
Michael Seamer, Adrian Melia, (2015),"Remunerating non-executive directors with stock options:
who is ignoring the regulator?", Accounting Research J ournal, Vol. 28 Iss 3 pp. 251-267 http://
dx.doi.org/10.1108/ARJ -12-2013-0092
Ning Du, Kevin Stevens, J ohn McEnroe, (2015),"The effects of comprehensive income on investors’
judgments: An investigation of one-statement vs. two-statement presentation formats", Accounting
Research J ournal, Vol. 28 Iss 3 pp. 284-299 http://dx.doi.org/10.1108/ARJ -11-2013-0083
Teng Zhou, J acqueline Birt, Michaela Rankin, (2015),"The value relevance of exploration
and evaluation expenditures", Accounting Research J ournal, Vol. 28 Iss 3 pp. 228-250 http://
dx.doi.org/10.1108/ARJ -09-2013-0067
Access to this document was granted through an Emerald subscription provided by emerald-
srm:115632 []
For Authors
If you would like to write for this, or any other Emerald publication, then please use our Emerald
for Authors service information about how to choose which publication to write for and submission
guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information.
About Emerald www.emeraldinsight.com
Emerald is a global publisher linking research and practice to the benefit of society. The company
manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as
well as providing an extensive range of online products and additional customer resources and
services.
Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the
Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for
digital archive preservation.
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
*Related content and download information correct at time of
download.
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
Board diversity and intellectual
capital performance
The moderating role of the effectiveness of
board meetings
Mahfoudh Abdul Karem Mahfoudh Al-Musali and
Ku Nor Izah Ku Ismail
School of Accounting, University Utara Malaysia, Sintok, Malaysia
Abstract
Purpose – The purpose of this paper is to investigate if the effectiveness of board meetings moderates
the relationship between board diversity (in terms of educational level and nationality) and intellectual
capital (IC) performance.
Design/methodology/approach – The empirical data are drawn from banks’ annual reports over the
three-year period of 2008 to 2010. Public’s value-added intellectual coeffcient method is applied to measure
IC performance. The frequency of board meetings is used a proxy for board meeting effectiveness.
Findings – Basedonthe hierarchical regressionanalysis, our results donot support the hypothesis that the
effect of board diversity on IC performance is positive as the effectiveness of board meetings increases.
Practical implications – Findings of this study indicate that there is a need for more effective
meetings through providing appropriate and suffcient information to directors, particularly in
strategic issues such as those related to IC that could make board members better prepared and more
involved in meetings.
Originality/value – This study adds to the literature, as it is the frst study that explores the variables
that could affect the relationship between board diversity and IC performance in the context of banks.
Keywords VAIC, GCC banks, Board meetings, Intellectual capital performance, Board diversity
Paper type Research paper
1. Introduction
Issues of intellectual capital (IC) performance and corporate governance have
increasingly attracted the attention of researchers, policy makers, regulatory bodies and
investors both from developed and emerging countries. With the advent of
knowledge-based economy, IC performance becomes crucially important for the growth
and development of frms in general, and knowledge-based frms such as banks in
particular, as the latter’s key resources are intangible and intellectual in nature (Ahuja
and Ahuja, 2012; Kamath, 2007; Goh, 2005). It is argued that the IC of banks is more
important than their physical capital in the process of wealth creation (Latif et al., 2012;
El-Bannany, 2008; Kamath, 2007; Goh, 2005). This is because banks provide
knowledge-based products or services (Shih et al., 2010) and it is the IC rather than
physical capital that determines the quality of services and products provided to
customers (Latif et al., 2012; Kamath, 2007; Goh, 2005). Hence, according to Ahuja and
Ahuja (2012), banks with better IC performance would likely be more successful than
The authors wishto express their gratitude to Universiti Utara Malaysia for fundingthis research.
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1030-9616.htm
ARJ
28,3
268
Received22 January2014
Revised3 April 2014
20 July2014
Accepted15 August 2014
Accounting Research Journal
Vol. 28 No. 3, 2015
pp. 268-283
©Emerald Group Publishing Limited
1030-9616
DOI 10.1108/ARJ-01-2014-0006
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
others, and those with poorer IC performance would need to take steps to improve their
performance if they want to succeed.
The GCC countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and Arab
Emirates) have expressed their interest in expanding their knowledge-based sectors in
line with their efforts to diversify their economy to reduce their high dependency on the
oil and gas sector as the main source of revenues (Randeree, 2012). The enrichment of the
mentality and intellectual capacity of a nation has become one of the areas targeted
under the GCC countries’ plans for growth and development (Ku Ismail and Abdul
Karem, 2011). According to Al-Muharrami and Matthews (2009), GCC countries share a
large number of economic, cultural and political similarities, which by far outweigh any
differences. The banking sector in most of the GCC countries is the second highest
contributor to the countries’ GDP after the oil and gas sector and it remains the
cornerstone of the non-oil GDP growth (Abu Loghod, 2010).
Research on IC performance of GCC banks documents that IC performance of GCC
banks is relatively low (Al-Musalli and Ku Ismail, 2012a, 2012b, 2011; Abdul Salam
et al., 2011; Ku Ismail and Abdul Karem, 2011). Thus, to be able to enhance IC
performance, GCC bank managers as well as regulators need to determine the factors
that may develop the IC or otherwise.
Corporate governance is considered an important determinant of IC performance.
According to Safeddine et al. (2009) and Keenan and Aggestam (2001), corporate
governance and IC are related. Keenan and Aggestam (2001, p.259) wrote: “Corporate
governance is responsible for creating, developing, and leveraging the IC residing in
the people, structures, and processes of the frm”.
A board of directors (being the most important internal mechanism of corporate
governance) is viewedas animportant tool to create, develop, leverage andmanage the ICof
a frm and thus, infuences frm performance (Abidin et al., 2009; Ho and Williams, 2003;
Williams, 2001). According to Williams (2001), boards of directors can structure relevant
strategies andpolicies onhowtoobtainandbest utilize the requiredresources underlyingIC.
Theoretically, it has been argued that the management of IC will require greater
innovation, perceptions and fexibility in the decision-making process (Williams, 2001),
which are more likely to exist in a board with greater diversity (Talke et al., 2010;
Wincent et al., 2010; Williams, 2001; Goodstein et al., 1994). The Upper echelon theory
suggests that diversity among board members help themto be more innovative, develop
more effective strategies and produce high-quality innovative decisions that will
improve the quality of actions taken by a frm(Certo et al., 2006; Auh and Menguc, 2005;
Carter et al., 2003). From the perspective of corporate governance, resource dependency
theory suggests that greater diversity among board members can lead to improved frm
performance through facilitating the acquisition of critical resources for an
organization, including IC (Goodstein et al., 1994).
However, despite its importance, little attention has been given by previous studies to
the potential impact of board diversity on IC performance. The emphasis of previous
studies was on the association between board size and board-independence-related
attributes such as percentage of outside directors, CEO duality and board ownership
and IC performance, producing inconclusive results (Abidin et al., 2009; Ho and
Williams, 2003; Williams, 2000). According to Keenan and Aggestam(2001), knowledge
and attitudes of board members, rather than the structure of the board, are more
important in managing IC. Previous studies that examined the relationship between
269
Intellectual
capital
performance
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
board diversity and IC performance provided empirical evidence that greater diversity
amongst members of the board of directors leads to improved frm IC performance
(Swartz and Firer, 2005; Williams, 2001, 2000). However, these studies focused only on
gender and ethnic diversity, but ignored other characteristics such as board educational
level diversity and nationality diversity.
It is argued that board diversity in terms of education level and nationality would
improve frm outcomes such as frm innovativeness (Talke et al., 2010; Wincent et al.,
2010), reputation (Miller and Triana, 2009; Mizruchi, 1996) and better understanding of
customer needs (Erhardt et al., 2003; Oxelheim and Randøy, 2003). These outcomes are
related and have important implications on IC performance. However, scholars like
Talke et al. (2010) and Certo et al. (2006) argue that board diversity does not affect frm
performance as much; they further suggest that instead of investigating a simple direct
relationship between board diversity and frm performance, variables that affect this
relationship should be explored. Carpenter (2002) suggests that inconsistencies in
diversity-performance relationships shown in prior studies may point to the possibility
that important moderating or intervening variables have been overlooked. Several
researchers have suggested that despite the merits of diversity among top managers, it
is also accompanied by costs (Talke et al., 2010; Auh and Menguc, 2006; Certo et al.,
2006). While the differences among board members may provide a board with a variety
in resources, these differences may also have problematic consequences with regard to
frm performance (Certo et al., 2006). Auh and Menguc (2005) stated that greater
diversity has been shown to cause process defciencies by plaguing effective operation
of the 4Cs (i.e. communication, collaboration, coordination and cohesiveness). Unless the
costs associated with a diverse board are attenuated, frm outcomes such as IC
performance will suffer as a result.
One aspect of resource dependency theory linked with corporate governance and
performance is the effectiveness of board meetings. This study proposes that the
effectiveness of board meetings can play a pivotal role in lessening the disadvantages
related to board diversity and would in fact lead to greater IC performance. We use the
number of board meetings as a proxy for board effectiveness. This proposition is based
on the idea that more frequent board meetings improve board effectiveness (Conger
et al., 1998). According to Wincent et al. (2010), frequent board meetings translate more
readily board knowledge, expertise and ties into improvements in frm outcomes. In
addition, using frequency of board meetings as a measure of board meeting
effectiveness is consistent with previous studies. It has been suggested that frequency of
board meetings as a contingent condition for board diversity would in fact lead to
greater frm outcomes (Wincent et al., 2010).
The effectiveness of meetings is not necessarily shown by the frequency of meetings.
It is also shown by the behavior of the individual board members in the meetings, such
as the preparation before meetings, attentiveness and participation during meetings and
post-meeting follow-ups (Carcello et al., 2002). However, the only measure that is
publicly available is the number of board meetings (Carcello et al., 2002). Therefore, this
study proposes that the effectiveness of board meetings (measured by the frequency of
board meetings) would moderate the board diversity-IC performance relationship.
Our fndings make two contributions to board-IC performance literature:
(1) This paper considers whether the effectiveness of board meetings change the
relationship between board diversity and IC performance.
ARJ
28,3
270
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
(2) The fndings of the study have implications for GCC banks and regulatory
authorities since high expectations are placed on corporate governance to
improve GCC banks’ performance.
In addition, the results of this study would be of interest to regulators in other countries
whose economic and cultural conditions are similar to that of the GCC countries.
The remainder of this paper is organized as follows. Section 2 reviews briefy the
literature on IC, and Section 3 develops the hypotheses. Section 4 discusses the research
methods, and Section 5 presents the results. Finally, Section 6 discusses the implications
of the fndings and concludes the paper.
2. Intellectual capital: defnition, classifcation and measurement
Until now, there has been no uniformor generally accepted defnition or classifcation of
IC (Ahuja and Ahuja, 2012; Chu et al., 2011; Zeghal and Maaloul, 2010). For the purpose
of this paper and consistent with previous studies such as Ho and Williams (2003),
Abidin et al. (2009) and Goh (2005), we adopted the defnition derived by the OECD
(2000). The OECD (2000, p. 6) defnes IC as “the economic value of two categories of
intangible assets of a frm:
(1) Human capital; and
(2) Organizational (structural) capital”.
Human capital (HC) is defned as the knowledge, qualifcations, experiences and skills of
employees that they take with them when they leave a frm (Zeghal and Maaloul, 2010;
Ross and Ross, 1997). Structural capital (SC) refers to the knowledge that remains with
the frm after the employees leave. SC is the result of HC’s past performances (Abdul
Salam et al., 2011). It includes production processes, organization management
processes, organizational routines, procedures, systems, cultures and databases,
information technology, customer relations and loyalty, supplier relation, frm brand
and reputation and so on (Ting and Lean, 2009; Goh, 2005).
According to Swartz and Firer (2005), the various conceptual, epistemological and
theoretical differences of the IC concept lead to the absence of a fully accepted measure
of IC performance. According to Chan (2009), there are 34 methods identifed in the
literature for measuring, evaluating and accounting for IC. Among these methods, the
Value-Added Intellectual Coeffcient (VAIC) method has been suggested by many
researchers as the most appropriate method to measure IC performance (Abdul Salam
et al., 2011; Joshi et al., 2010). According to Kamath (2007), the VAIC method is designed
to enable a frm to measure IC performance and it is considered appropriate for
knowledge-inclined frms such as banks.
3. Hypotheses development
Corporate governance literature uses the concept of board diversity to refer to board
composition and the varied combination of attributes, characteristics and expertise
contributed by individual board members in relation to board process and
decision-making (Van der Walt and Ingley, 2003). There is a growing recognition of the
value brought about by diverse board members in terms of education level and
nationality into the boardrooms in the GCC region, and one of the priority improvement
271
Intellectual
capital
performance
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
areas for boards in the region[1] is the recruitment of more foreign directors (GCC Board
Directors Institute, 2011).
Studies have suggested that board diversity could infuence IC performance by way
of promoting greater innovation and fexibility in the decision-making process. In
addition, board diversity would improve frms’ understanding of customers’ and
employees’ perceptions and needs, promote the willingness to change and adapt and
strengthen the frm’s relationship with internal and external stakeholder groups
(Al-Musalli and Ku Ismail, 2012a, 2012b; Williams, 2000, 2001; Swartz and Firer, 2005).
Diversity of educational level among board members refects their varying degrees of
knowledge and skills, thereby infuencing board capacity to generate more or less
creative solutions to resolve complex problems and provide a broader scope of inputs
that help to improve strategy formulation and evaluation (Ruigrok et al., 2006; Auh and
Menguc, 2006; Bantel and Jackson, 1989). It is argued that boards with greater
educational-level diversity are more likely to have greater information processing
capabilities, fexibility and better ability to adopt new ideas and to accept innovations
(Wincent et al., 2010; Talke et al., 2010). These characteristics could help directors in
structuring relevant strategies and policies on how to obtain and best utilize the IC
resources. Thus, educational-level diversity of board members could be advantageous
for GCC banks seeking to improve IC performance.
The GCC countries are occupied by more than 200 nationalities (Al-Khouri, 2010).
The region is one of the jurisdictions with the most diverse workforce in the world, in
which foreigners constitute 60 to 90 per cent of its workforce (Al-Khouri, 2010). Thus,
nationality diversity among board members (i.e. including foreign members) is expected
to affect bank ICperformance in ways similar to educational level diversity, particularly
banks’ relationships with employees and customers that constitute the most important
components of banks’ IC (Kamath, 2007). Williams (2001) claims that dissimilarities of
board members’ cultural backgrounds can contribute to different sociological
perceptions and a wider set of views that enables a board to be more sensitive to the
requirements of the workforce. This, thus, enhances a board’s ability to instigate more
comprehensive policies, strategies, activities and projects that create working
conditions that are attractive to a broader spectrum of potential employees and exploit
its existing human resources to its advantage.
Previous studies have further shown that board members fromdifferent nationalities
help frms to understand its culturally diverse customer base (i.e. particular customer
preferences and requirements) and to improve consumer policies that establish and
sustain long-termrelationships with customers (Randøy et al., 2006; Williams, 2001). As
highlighted earlier, despite the benefts of having boards of directors with greater
diversity, the costs of diversity are also noteworthy. It has been argued that diversity
could lead to conficts and negatively affect the effectiveness of communication in top
management (Carpenter, 2002). According to Goodstein et al. (1994), board diversity
may lead to potentially conficting conceptions of strategic change and limit a board’s
ability to take timely strategic actions. Consequently, excessive diversity can actually
affect IC performance negatively by impeding and hampering creative decision-making
related to IC. Therefore, the direct effect of board diversity on IC performance can be
mixed and ambiguous because of the dual impact of the benefts and costs associated
with board diversity. Based on resource dependency theory, this study posits that the
effectiveness of board meetings could help in lessening the disadvantages related to
ARJ
28,3
272
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
board diversity. Thus, the effect of board diversity in terms of educational-level
diversity and nationality diversity on IC performance will be positive as the
effectiveness of board meetings improves.
The frequency of board meetings is an important mechanism to ensure that issues
are discussed in suffcient depths, and board members get more opportunities to confer
and to set strategies (Vafeas, 1999; Zahra and Pearce, 1989). Simon et al. (1999) found
that debates and discussions among top management team members increase the
tendency of diversity to enhance frm performance, arguing that through debates and
in-depth discussions, team members are likely to draw on their diversity by rethinking
their points of viewand consider factors they had not been previously considered. Simon
et al. (1999) further contended that debates among team members can help overcome
board diversity-related problems such as poor communication and coordination. This,
in particular, may improve the effects of board diversity on a board’s ability to provide
better advice and counsel on strategic issues to management and effectively participate
in formulating IC-related strategies and policies that help a frm to retain, develop and
best utilize resources underlying IC which will ultimately increase IC performance.
Wincent et al. (2010) argue that frequent board meetings may improve innovative
performance of frms in that it increases the likelihood of consensus among directors and
helps to handle uncertainties. IC performance, consequently, could be improved since
innovation increases a frm’s stake of intangibles and facilitates IC development
(Marques et al., 2006). According to Rabi et al. (2010), frequent board meetings helps
board members to evaluate R&Dprojects more thoroughly and enables themto monitor
and supervise the progress of any R&Dprojects and take necessary actions for projects
that are not progressing successfully. This will ultimately help to improve IC
performance. Accordingly, we propose the following contingency hypothesis that
summarizes our central argument:
H1. Board diversity (i.e. educational-level diversity and nationality diversity) and the
effectiveness of board meetings will infuence IC performance through their
interaction effect. Diverse boards with more effective board meetings will have a
higher level of ICperformance comparedto diverse boards withless effective board
meetings.
4. Methods
Our sample frame comprises of all listed banks in the GCC countries during the period
2008-2010. Due to the inaccessibility of some of the annual reports and incomplete data
in some, the fnal sample consists of 128 bank-years, distributed as in Table I. All
Kuwaiti-listed banks are excluded fromthe sample due to missing relevant information.
Out of the 128 observations, 43 are from 2008, 44 from 2009 and 41 from 2010.
Table I.
Number and types of
GCC banks
Country Conventional banks Islamic bank Total
Bahrain 23 13 36
Oman 17 0 17
Qatar 9 6 15
Saudi Arabia 20 5 25
UAE 23 12 35
Total 92 36 128
273
Intellectual
capital
performance
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
We apply VAIC method developed by Pulic (1998) in measuring IC performance. It is a
widely used method (Abdul Salam et al., 2011; Joshi et al., 2010) and is suggested by
many researchers as the most appropriate method to measure IC performance (Abdul
Salamet al., 2011; Joshi et al., 2010; Ting and Lean, 2009; Chan, 2009; Kamath, 2007; Goh,
2005). One of the advantages of the VAIC method is that it has a history of deployment
and application in IC performance research (Komnenic and Pokrajcic, 2012).
Algebraically, VAIC is expressed as follows:
VAIC ? CEE ? HCE ? SCE (1)
Where:
• CEE is an indicator of Value-Added effciency of capital employed (CEE ? VA/
CE); CE ?(book value of total assets) ?(intangible assets) ?(fnancial assets) ?
(physical assets);
• HCE is an indicator of value-added effciency of HC (HCE ?VA/HC); HC ?total
salaries and wages; and
• SCE is an indicator of Value-Added effciency of SC (SCE ?SC/VA), SC?VA –
HC ? (value added) ? (total salaries & wages). IC effciency (ICE) is the sum of
human capital effciency (HCE) and structural capital effciency (SCE). Total VA
is calculated by using information contained in the annual report as follows:
VA ? OP ? EC ? D ? A (2)
Where, OP?Operating Profts; EC?Total Employee Expenses; and D?Depreciation;
and A ?Amortization.
We use Blau’s index to measure board diversity (in terms of educational level and
nationality). Blau’s index is described as an ideal measure to capture diversity and
variations within a group of people because it meets the four criteria for a good measure
of diversity: it varies from zero (representing no diversity) to theoretical maximum of
one. Larger numbers indicate greater diversity. The index is bounded and assumes that
there are no negative values (Miller and Triana, 2009). Educational-level diversity is
measured using Blau’s index by calculating the following mathematical equation:
Educational level diversity ? 1 ? ?(Pi)
2
, where, p ? the percentage of board
members in each educational category and i ? the number of different educational
categories represented on the board. Consistent with previous studies, the maximum
educational level of each board member is identifed within four categories:
(1) Without a bachelor’s degree;
(2) Bachelor’s degree;
(3) Master’s degree; and
(4) Doctoral degree (Talke et al., 2010 and Kim and Lim, 2010).
Similarly, nationality diversity is calculated as 1 ??(Pi)
2
, where, p ?the percentage of
board members in each nationality category, i ? the number of different nationality
categories represented on the board. This study identifes two categories to capture
nationality diversity: locals and foreigners. This measurement is similar to the study by
ARJ
28,3
274
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
Darmadi (2011) and Ruigrok et al. (2006). The effectiveness of board meetings is
measured as the number of board meetings per year (Wincent et al., 2010; Vafeas, 1999).
This study employs several control variables. Al-Musalli and Ku Ismail (2012b)
found that board size and representation of independent directors have an important
impact on ICperformance of GCCbanks. Therefore, this study controlled for the effect of
board size, measured as the total number of directors serving on a board, and
representation of independent directors measured as the number of independent
directors on a board (Abeysekera, 2010). Following previous studies, we also control for
other determinants of IC performance, that is, bank size and fnancial performance,
measured by the natural log of total assets and return on equity, respectively. We further
set a dummy variable to control for the global fnancial crisis, whose value is 1 for the
years 2008 and 2009, and 0 otherwise.
We employ hierarchical regression analysis to test the moderating effect of the
effectiveness of board meetings on the relationship between board diversity and IC
performance. Following Baron and Kenny (1986), we enter control variables in the frst
hierarchical step. We enter the independent variables in the second step to examine the
relative direct contribution of board demographic diversity. The moderator variable is
entered in the third step, and the interaction terms are entered in the fnal regression model.
5. Results
The correlation matrix and descriptive statistics are presented in Table II. An
examination of the correlation matrix suggests that multicolinearity is not a problemin
the regression procedure since the correlation coeffcients between independent
variables are less than 0.7 (Hair et al., 2006), and none of the variance infation factors
approach the threshold value of 10 (Kline, 2005). However, when the interaction terms
for testing the moderating effects are entered in the regression model, there is a
multicollinearity problem. Thus, to reduce multicollinearity, all variables used to
construct the interaction terms are standardized (Aguinis and Gottfredson, 2010).
Table III shows the results of the four-step hierarchical analysis. In the frst step, the
R
2
indicates that 51.3 per cent of the level of IC performance can be explained by the
control variables. By adding the independent variables in Step 2, R
2
increased to 0.52.
However, this increase in R
2
(?R
2
?0.008) is statistically insignifcant (p ?0.10). This
implies that board diversity in terms of educational level and nationality does not
Table II.
Means, standard
deviations and
correlations among
all variables
Variable Mean SD 1 2 3 4 5 6 7
1. Educational level diversity 0.47 0.15
2. Nationality diversity 0.22 0.19 0.234**
3. Board size 9.16 1.91 0.245** 0.114
4. Number of independent
directors 4.78 2.09 0.129 0.105 0.269**
5. Financial performance 0.11 0.13 ?0.005 ?0.220** 0.092 0.008
6. Bank size 9.86 0.59 ?0.046 ?0.091 0.413** 0.118 0.317**
7. Global fnancial crisis 0.051 0.017 0.041 0.048 0.114 ?0.041
8. IC performance 4.20 2.7 ?0.149* ?0.223* ?0.080 ?0.196* 0.672** 0.247** 0.042
Notes: n ?128; *p ?0.05; **p ?0.01
275
Intellectual
capital
performance
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
Table III.
Results of
hierarchical
regression analysis
V
a
r
i
a
b
l
e
s
S
t
e
p
1
S
t
e
p
2
S
t
e
p
3
S
t
e
p
4
B
o
a
r
d
s
i
z
e
?
0
.
1
9
4
*
*
(
?
1
.
9
3
2
)
?
0
.
1
5
4
*
(
?
1
.
4
7
5
)
?
0
.
1
5
5
*
(
?
1
.
4
9
6
)
?
0
.
1
5
9
*
(
?
1
.
5
4
2
)
R
e
p
r
e
s
e
n
t
a
t
i
o
n
o
f
i
n
d
e
p
e
n
d
e
n
t
d
i
r
e
c
t
o
r
s
?
0
.
2
2
9
*
*
*
(
?
2
.
7
2
8
)
?
0
.
2
1
9
*
*
*
(
?
2
.
5
9
7
)
?
0
.
2
3
2
*
*
*
(
?
2
.
7
5
3
)
?
0
.
2
6
1
*
*
*
(
?
3
.
0
5
8
)
B
a
n
k
s
i
z
e
0
.
5
3
5
*
(
1
.
6
0
0
)
0
.
4
5
5
*
(
1
.
3
4
0
)
0
.
4
1
9
(
1
.
2
4
1
)
0
.
4
2
7
(
1
.
2
7
0
)
F
i
n
a
n
c
i
a
l
p
e
r
f
o
r
m
a
n
c
e
1
2
.
6
1
6
*
*
*
(
9
.
6
8
9
)
1
2
.
5
7
8
*
*
*
(
9
.
9
4
4
)
1
2
.
8
2
4
*
*
*
(
9
.
6
4
5
)
1
2
.
6
8
9
*
*
*
(
9
.
5
9
4
)
G
l
o
b
a
l
f
n
a
n
c
i
a
l
c
r
i
s
i
s
?
0
.
1
7
6
(
?
0
.
4
8
0
)
?
0
.
1
5
6
(
?
0
.
4
2
7
)
?
0
.
1
5
1
(
?
0
.
4
1
6
)
?
0
.
0
8
9
(
?
0
.
2
4
6
)
E
d
u
c
a
t
i
o
n
a
l
l
e
v
e
l
d
i
v
e
r
s
i
t
y
?
0
.
2
5
7
(
?
1
.
2
7
7
)
?
0
.
2
2
9
(
?
1
.
1
4
2
)
?
0
.
2
4
9
(
?
1
.
2
4
4
)
N
a
t
i
o
n
a
l
i
t
y
d
i
v
e
r
s
i
t
y
?
0
.
0
5
0
(
?
0
.
2
7
4
)
?
0
.
0
4
0
(
?
0
.
2
2
0
)
?
0
.
0
9
3
(
?
0
.
5
1
1
)
E
f
f
e
c
t
i
v
e
n
e
s
s
o
f
b
o
a
r
d
m
e
e
t
i
n
g
s
0
.
2
8
3
*
*
(
1
.
6
9
0
)
0
.
2
0
9
(
1
.
2
2
8
)
E
d
u
c
a
t
i
o
n
a
l
l
e
v
e
l
d
i
v
e
r
s
i
t
y
*
e
f
f
e
c
t
i
v
e
n
e
s
s
o
f
b
o
a
r
d
m
e
e
t
i
n
g
s
0
.
0
1
1
(
0
.
0
4
6
)
N
a
t
i
o
n
a
l
i
t
y
d
i
v
e
r
s
i
t
y
*
e
f
f
e
c
t
i
v
e
n
e
s
s
o
f
b
o
a
r
d
m
e
e
t
i
n
g
s
?
0
.
3
8
1
*
*
(
?
1
.
9
3
4
)
R
2
0
.
5
1
3
0
.
5
2
0
0
.
5
3
1
0
.
5
4
6
A
d
j
u
s
t
e
d
R
2
0
.
4
9
3
0
.
4
9
2
0
.
5
0
0
0
.
5
0
7
R
2
c
h
a
n
g
e
0
.
5
1
3
0
.
0
0
8
0
.
0
1
1
0
.
0
1
5
S
i
g
n
i
f
c
a
n
t
F
c
h
a
n
g
e
0
.
0
0
0
0
.
3
8
3
0
.
0
9
4
0
.
1
5
6
D
u
r
b
i
n
W
a
t
s
o
n
1
.
7
1
8
N
o
t
e
s
:
n
?
1
2
8
f
o
r
a
l
l
m
o
d
e
l
s
;
u
n
s
t
a
n
d
a
r
d
i
z
e
d
c
o
e
f
f
c
i
e
n
t
s
a
r
e
r
e
p
o
r
t
e
d
;
t
h
e
f
g
u
r
e
s
i
n
p
a
r
e
n
t
h
e
s
e
s
a
r
e
t
v
a
l
u
e
s
;
*
p
?
0
.
1
0
;
*
*
p
?
.
0
.
0
5
;
*
*
*
p
?
0
.
0
1
ARJ
28,3
276
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
contribute in explaining the variation in IC performance. This result is consistent with
those of Al-Musalli and Ku Ismail (2012a).
The inclusion of the moderator variable (board meeting effectiveness) in Step 3
results in a statistically signifcant increase in R
2
(p ? 0.05, one tail). This result
indicates that there is a major effect of the moderator variable on the dependent variable
(quasi moderator). When the interaction terms are entered into the regression equation
(Step 4 of Table II), there is a signifcant increase in model ft for regression equations
that predict IC performance (?R
2
?0.015; p ?0.10, one tail).
Upon the inspection of the beta coeffcient for interaction terms, we found that only one
interaction out of the two interactions produced a signifcant relationship. The interaction
between board nationality diversity and the effectiveness of board meetings produced a
signifcant result. However, the effect on IC performance is negative, which is in
contradiction with the hypothesized relationship (? ? ?0.385, p ? 0.05, one tail). This
fndingisgraphicallypresentedinFigure1. Theinteractionbetweenboardeducational-level
diversity and the effectiveness of board meetings has an insignifcant effect on IC
performance (? ?0.010, p ?0.10). Overall, our fndings suggest that our hypothesis is not
supported. We next discuss our fndings and their implications in detail.
A graph on the relationship between the IC performance and board nationality
diversity with board meeting effectiveness in Figure 1 shows the same direction for
banks that practice either more or less effective board meetings. Both lines indicate a
negative relationship between board nationality diversity and the IC performance, with
less effective board meetings being much steeper than more effective board meetings.
Figure 1.
Relationship between
board nationality
diversity and IC
performance with the
effectiveness of
board meetings as
the moderator
277
Intellectual
capital
performance
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
The increase in board nationality diversity leads to less IC performance when there is a
practice of frequent board meetings.
6. Study implications
The fndings of this studyshowthat boarddemographic diversity(i.e. educational level and
nationality) is not related to IC performance of banks. Thus, the study fails to support the
resource dependency theory and upper echelon theory in terms of the association between
educational-level diversity, nationalitydiversityandICperformance of banks. However, the
fndings seemto support the theoretical assumption by scholars like Talke et al. (2010) and
Certo et al. (2006) that board demographic diversity exhibits no main effect on frm
performance. They suggest that instead of investigating a simple direct relationship
between board demographic diversity and frm performance, variables that affect this
relationship should be explored.
A possible reason for the insignifcant relationship between board educational level
diversity and bank IC performance is that GCC directors are working in an environment
characterized by high information asymmetry problem (Chahine, 2007). GCC board
members state that they do not receive suffcient and appropriate information about
corporate strategyandindustrytrends as well as organizational information. Consequently,
theydo not activelyparticipate inboardmeetings (BDI, 2011). As a result, GCCboards could
not beneft fromthe opportunity of having a diverse level of academic qualifcations, which
provide diverse skills of research and analysis. This situation might provide a possible
explanation for the insignifcant moderating effect of the effectiveness of board meetings on
the relationship between educational-level diversity and IC performance. According to the
GCC Board of Directors Institute survey, 82 per cent of the GCC board members state that
they do not receive the appropriate information to prepare ahead for meetings (GCC Board
Directors Institute, 2011). GCC board members state that they do not receive suffcient and
appropriate information about corporate strategy and industry trends as well as
organizational information, and consequently they do not actively participate in board
meetings (GCC Board Directors Institute, 2011). Arguably, as a result of not receiving
suffcient and appropriate strategic information, GCC banks’ board members who lack the
necessary skills and adequate understanding of the banking environment (OECD, 2009) are
less likely to actively participate in meetings and less involved in strategic decisions such as
those related to IC development.
With respect to board nationality diversity, although information asymmetry problem
affects both foreign and local directors, there are differences in the level of information
asymmetry between these two types of directors (Zaheer, 1995). Foreign directors have
larger asymmetries of information about frmactivities than domestic directors because as
foreigners they are not as well embedded in the networks of information in the host country
(Zaheer, 1995). In addition, local directors are better connected and communicated with the
managers (Chahine and Tohme, 2009). Hence, due to their poor amount of frm-specifc
information, foreign directors in GCC banks may not be able to make signifcant
contributions relatedto ICdevelopment. However, contraryto the expectations, the fndings
showa statistically signifcant negative interaction of both board nationality diversity and
the frequency of board meetings for bank IC performance. A possible explanation for this
unexpected fnding is that under this condition, perhaps when boards with many directors
from foreign nationality meet regularly, they tend to change strategic plans and overly
complicate things. Thus, frequent meetings with many foreign directors may create stress,
ARJ
28,3
278
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
confict and uncertainty among highly nationality diverse boards which is
counterproductive and impedes the generalization of good IC-related decisions and
strategies. Anegative IC performance is the result.
The insignifcant effect of educational-level diversity on IC performance suggests
that merely a diverse level of academic qualifcations, which provide diverse skills of
research and analysis, does not add value to IC performance, but there is a need for
identifying the importance of bank-relevant skill sets that are appropriate for GCC
banks. Similarly, nationality diversity is not signifcantly related to IC performance.
Consequently, this raises concerns of the benefts of recruiting more foreign nationals on
the boards of GCC banks (as recommended by GCC corporate governance institutions),
suggesting that this procedure is not a quick way to enhance IC performance. A policy
implication from this fnding is that more research is needed to understand whether
foreign members experience diffculties in promoting better corporate governance and
adding value to IC performance of GCC banks.
With respect to the effectiveness of board meetings, fndings of this study indicate
that there is a need for more effective meetings through providing appropriate and
suffcient information to directors particularly in strategic issues such as those related to
IC. By doing so, board members would be better prepared and more involved in
meetings. In addition, fndings of this study may lend support to the recommendation
issued recently by GCCBoard Directors Institute (2011) that GCCboards need to allocate
more time to discuss strategic issues.
The fndings of this study warrant further investigation on the nature of the role played
by independent directors of GCC banks in developing IC performance. As a high number of
independent directors is found to be associated with low IC performance, the GCC policy
makers and regulators must analyze whether the recommendations for GCC banks to have
a board of directors dominated by independent directors is appropriate. The regulators
should bear in mind that GCCbanks are operating in small stock markets and it may not be
easyfor themtohave qualifedindependent directors due totheir lackof expertise, skills and
knowledge in understanding the banking environment (OECD, 2009). In addition, due to the
high information asymmetry in the GCC banking sector, it is less likely that banks would
beneft from having a large number of independent directors. Furthermore, the dominant
role of the controlling shareholders in nominating and selecting independent directors may
prevent banks fromappointing “truly” independent directors.
Finally, the insignifcant effect of global fnancial crisis on ICperformance of GCCbanks
may be attributed to the macro intervention policies taken by GCCgovernments which help
to mitigate the adverse impact of the current global fnancial crisis. According to Khamis
andSenhadji (2010), despite the sharpdecline inoil revenues, GCCgovernments maintained
or even increased their spending levels to offset the fallout fromthe crisis. The intervention
policies taken by the GCC governments may create an atmosphere that creates confdence
among GCC banks and helps themcontinue to implement their activities normally.
Note
1. Although in the popular press, diversity is almost always synonymous with gender and ethnic
diversity (Knight et al., 1999), and this study ignores these two demographic characteristics. This
is because GCC countries do not include ethnic groups and there is a weak presence of women on
the boards ranging from 0.1 per cent in Saudi Arabia to 2.7 per cent in Kuwait (The National
Investor, 2008).
279
Intellectual
capital
performance
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
References
Abdul Salam, F., Al-Qaheri, H. and Al-Khayyat, R. (2011), “The intellectual capital performance of
Kuwaiti banks: an application of VAIC model”, available at: www.SciRP.org/journal/ib
Abeysekera, I. (2010), “The infuence of board size on intellectual capital disclosure by Kenyan
listed frms”, Journal of Intellectual Capital, Vol. 11 No. 4, pp. 504-518.
Abidin, Z.Z., Kamal, N.M. and Jusoff, K. (2009), “Board structure and corporate performance in
Malaysia”, International Journal of Economics and Finance, Vol. 1 No. 1, pp. 150-164.
AbuLoghod, H. (2010), “Do Islamic banks performbetter thanconventional banks? Evidence from
gulf cooperation council countries”, Working Paper No 1011, available at: www.arabapi.
org/jodep/products/delivery/wps1011.pdf
Aguinis, H. and Gottfredson, R. (2010), “Best-practice recommendations for estimating interaction
effects using moderated multiple regression”, Journal of Organizational Behavior, Vol. 31
No. 6, pp. 776-786.
Ahuja, B.R. and Ahuja, N.L. (2012), “Intellectual capital approach to performance evaluation: a
case study of the banking sector in India”, International Research Journal of Finance and
Economics, No. 93, pp. 110-122.
Al-Khouri, A.M. (2010), “The challenge of identity in a changing world: the case of GCCcountries”,
The 21st-Century Gulf: The Challenge of Identity 2010 Proceedings, Exeter University, Gulf
Studies Conference, pp. 1-7.
Al-Muharrami, S. and Matthews, K. (2009), “Market power versus effcient-structure in Arab GCC
banking”, Applied Financial Economics, Vol. 19 No. 18, pp. 1487-1496.
Al-Musalli, M.A. and Ku Ismail, K.N.I. (2011), “Intellectual capital performance of the national
united Arab Emirates listed banks”, 7th Asia-Pacifc Management Accounting Association
APMAA Proceeding: Management Accounting: A Value Creation Tool for Sustainability,
17-19 November 2011, Kuala Lumpur, Malaysia.
Al-Musalli, M.A. and Ku Ismail, K.N.I. (2012a), “Intellectual capital performance and board
characteristics of GCC banks”, GSTF Business Review, Vol. 2 No. 1, pp. 80-86.
Al-Musalli, M.A. and Ku Ismail, K.N.I. (2012b), “Corporate governance, bank specifc
characteristics, banking industry characteristics, and intellectual capital performance of
banks in Arab gulf cooperation council countries”, Asian Academy Management Journal of
Accounting & Finance, Vol. 8, pp. 115-135.
Auh, S. and Menguc, B. (2005), “The infuence of top management team functional diversity
on strategic orientations: the moderating role of environmental turbulence and
inter-functional coordination”, International Journal of Research in Marketing, Vol. 22
No. 3, pp. 333-350.
Auh, S. and Menguc, B. (2006), “Diversity at the executive suite: a resource-based approach to the
customer orientation–organizational performance relationship”, Journal of Business
Research, Vol. 59 No. 5, pp. 564-572.
Bantel, K.A. and Jackson, S.E. (1989), “Top management and innovations in banking: does the
composition of the top team make a difference?”, Strategic Management Journal, Vol. 10
No. S1, pp. 107-124.
Baron, R.M. and Kenny, D.A. (1986), “The moderator-mediator variable distinction in social
psychological research: conceptual, strategic and statistical considerations”, Journal of
Personality and Social Psychology, Vol. 51 No. 6, pp. 1173-1182.
Carcello, J.V., Hermanson, D.R., Neal, T.L. and Riley, R.A. (2002), “Board characteristics and audit
fees”, Contemporary Accounting Research, Vol. 19 No. 2, pp. 365-384.
ARJ
28,3
280
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
Carpenter, M.A. (2002), “The implications of strategy and social context for the relationship
between top management team heterogeneity and frm performance”, Strategic
Management Journal, Vol. 23 No. 3, pp. 275-284.
Carter, D.A., Simkins, B.J. and Simpson, W.G. (2003), “Corporate governance, board diversity, and
frm value”, Finance Review, Vol. 38 No. 1, pp. 33-53.
Certo, S.T., Lester, R.H., Dalton, C.M. and Dalton, D.R. (2006), “Top management teams, strategy
and fnancial performance: a meta-analytic examination”, Journal of Management Studies,
Vol. 43 No. 4, pp. 813-839.
Chahine, S. (2007), “Activity-based diversifcation, corporate governance, and the market
valuation of commercial banks in the Gulf commercial council”, Journal of Management
Governance, Vol. 11 No. 4, pp. 353-382.
Chahine, S. and Tohme, N.S. (2009), “Is CEO duality always negative? An exploration of CEO
duality and ownership structure in the Arab IPO context”, Corporate Governance: An
International Review, Vol. 17 No. 2, pp. 123-141.
Chan, K.H. (2009), “Impact of intellectual capital on organizational performance: an empirical study of
companies in the Hang Seng index”, The Learning Organization, Vol. 16 No. 1, pp. 4-21.
Chu, S.K.W., Chan, K.H. and Wu, W.W.Y. (2011), “Charting intellectual capital performance of the
gateway to China”, Journal of Intellectual Capital, Vol. 12 No. 2, pp. 249-276.
Conger, J.A., Finegold, D. and Lawler, E.E. (1998), “Appraising boardroomperformance”, Harvard
Business Review, Vol. 76, pp. 136-148.
Darmadi, S. (2011), “Board diversity and frm performance: the Indonesian evidence”, Corporate
Ownership and Control, Vol. 9 No. 1, pp. 524-539.
El-Bannany, M. (2008), “Astudy of determinants of intellectual capital performance in banks: the
UK case”, Journal of Intellectual Capital, Vol. 9 No. 3, pp. 487-498.
Erhardt, N.L., Werbel, J.D. and Shrader, C.B. (2003), “Board of director diversity and frmfnancial
performance”, Corporate Governance Journal, Vol. 11 No. 2, pp. 102-111.
GCC Board Directors Institute (BDI) (2011), Embarking on a Journey: A Review of Board
Effectiveness in the Gulf, GCC Board Directors Institute, Dubai.
Goh, P.C. (2005), “Intellectual capital performance of commercial banks in Malaysia”, Journal of
Intellectual Capital, Vol. 6 No. 3, pp. 385-396.
Goodstein, J., Gautam, K. and Boeker, W. (1994), “The effects of board size and diversity on
strategic change”, Strategic Management Journal, Vol. 15 No. 3, pp. 241-325.
Hair, J.F., Bush, R.P. and Ortinau, D.J. (2006), Marketing Research Within a Change Information
Environment, 3rd ed., Mcgraw-Hill, New York, NY.
Ho, C.A. and Williams, S.M. (2003), “International comparative analysis of the association between
board structure and the effciency of value added by a frm from its physical capital and
intellectual capital resources”, The International Journal of Accounting, Vol. 38 No. 4,
pp. 465-491.
Joshi, M., Cahill, D. and Sidhu, J. (2010), “Intellectual capital performance in the banking sector: an
assessment of Australian owned banks”, Journal of Human Resource Costing and
Accounting, Vol. 14 No. 2, pp. 151-170.
Kamath, G.B. (2007), “The intellectual capital performance of Indian banking sector”, Journal of
Intellectual Capital, Vol. 8 No. 1, pp. 96-123.
Keenan, J. and Aggestam, M. (2001), “Corporate governance and intellectual capital: some
conceptualizations”, Corporate Governance Journal, Vol. 9 No. 4, pp. 259-275.
281
Intellectual
capital
performance
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
Khamis, M. and Senhadji, A. (2010), Impact of the Global Financial Crisis on the Gulf Cooperation
Council Countries and Challenges Ahead: An Update, International Monetary Fund,
Publication Services, Washington, DC.
Kim, H. and Lim, C. (2010), “Diversity, outside directors and frm valuation: Korean evidence”,
Journal of Business Research, Vol. 63 No. 3, pp. 284-291.
Kline, R.B. (2005), Principles and Practice of Structural Equation Modelling, 2nd ed., Guilford
Press, New York, NY.
Knight, D., Pearce, C.L., Smith, K.G., Olian, J.D., Sims, H.P. and Smith, K.A. (1999), “Top
management team diversity, group process, and strategic consensus”, Strategic
Management Journal, Vol. 20 No. 5, pp. 445-465.
Komnenic, B. and Pokrajcic, D. (2012), “Intellectual capital and corporate performance of MNCs in
Serbia”, Journal of Intellectual Capital, Vol. 13 No. 1, pp. 106-119.
Ku Ismail, K.N.I. and Abdul Karem, M. (2011), “Intellectual capital and the fnancial performance of
banks in Bahrain”, Journal of Business Management and Accounting, Vol. 1 No. 1, pp. 63-77.
Latif, M., Malik, M.S. and Aslam, S. (2012), “Intellectual capital effciency and corporate
performance in developing countries: a comparison between Islamic and conventional
banks of Pakistan”, Interdisciplinary Journal of Contemporary Research in Business, Vol. 4
No. 1, pp. 405-420.
Marques, D.P., Simon, F.J.G. and Caranana, C.D. (2006), “The effect of innovation on intellectual
capital: an empirical evaluation in the biotechnology and telecommunication industries”,
International Journal of Innovation Management, Vol. 10 No. 1, pp. 89-112.
Miller, T. and Triana, M.C. (2009), “Demographic diversity in the boardroom: mediators of the board
diversity-frm performance relationship”, Journal of Management Studies, Vol. 46 No. 5,
pp. 755-786.
Mizruchi, M.S. (1996), “What do interlocks do? An analysis, critique, and assessment of research
on interlocking directorates”, Annual Review of Sociology, Vol. 22, pp. 271-298.
Organization for Economic Co-operation and Development (OECD) (2000), Final Report:
Measuring and Reporting Intellectual Capital, Organization for Economic Co-operation and
Development (OECD), Paris.
Organization for Economic Co-operation and Development (OECD) (2009), Policy Brief on
Improving Corporate Governance of Banks in the Middle East and North Africa Region,
Organization for Economic Co-Operation and Development (OECD), Paris.
Oxelheim, L. and Randøy, T. (2003), “The impact of foreign board membership on frm value”,
Journal of Banking and Finance, Vol. 27 No. 12, 2369-2392.
Pulic, A. (1998), “Measuring the performance of intellectual potential in knowledge economy”,
available at: www.measuring ip.at/Opapers/Pulic/Vaictxt.vaictxt.html
Rabi, N.M., Zulkafi, A.H. and Hatt, M.H.C. (2010), “Corporate governance, innovation investment
and frm performance: evidence from Malaysian public listed companies”, Economia Seria
Management, Vol. 13 No. 2, pp. 225-239.
Randeree, K. (2012), “Workforce nationalization in the Gulf cooperation council states”, available
at: hawk.ethz.ch/[…]/en/KasimRandereeCIRSOccasionalPaper9.pdf
Randøy, T., Oxelheim, L. and Thomsen, S. (2006), “A Nordic perspective on corporate board
diversity (Nordic Innovation Centre project No 05030)”, available at: www.
nordicinnovation.org/Global/_Publications/Reports/2006/The%20performance%
20effects%20of%20board%20diversity%20in%20Nordic%20Firms.pdf
Ross, G. and Ross, J. (1997), “Measuring your company’s intellectual performance”, Long Range
Planning, Vol. 30 No. 3, pp. 413-426.
ARJ
28,3
282
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
Ruigrok, W., Peck, S., Tacheva, S., Greve, P. and Hu, Y. (2006), “The determinants and effects of board
nomination committees”, Journal of Management Governance, Vol. 10 No. 2, pp. 119-148.
Safeddine, A., Jamali, D. and Noureddine, S. (2009), “Corporate governance and intellectual capital:
evidence fromanacademic institution”, Corporate Governance Journal, Vol. 9 No. 2, pp. 146-157.
Shih, K., Chang, C. and Lin, B. (2010), “Assessing knowledge creation and intellectual capital in
banking industry”, Journal of Intellectual Capital, Vol. 11 No. 1, pp. 74-89.
Simon, T., Pelled, L.H. and Smith, K.A. (1999), “Making use of difference: diversity, debate, and
decision comprehensiveness in top management teams”, Academy of Management Journal,
Vol. 42 No. 6, pp. 662-673.
Swartz, N.P. and Firer, S. (2005), “Board structure and intellectual capital performance in South
Africa”, Meditari Accountancy Research, Vol. 13 No. 2, pp. 145-166.
Talke, K., Salomo, S. and Rost, K. (2010), “How top management team diversity affects
innovativeness and performance via the strategic choice to focus on innovation felds”,
Research Policy, Vol. 39 No. 7, pp. 907-918.
The National Investor (TNI) (2008), A Survey of GCC Boards, The National Investor, Abu Dhabi.
Ting, I.W.K. and Lean, H.H. (2009), “Intellectual capital performance of fnancial institutions in
Malaysia”, Journal of Intellectual Capital, Vol. 10 No. 4, pp. 588-599.
Vafeas, N. (1999), “Board meeting frequency and frm performance”, Journal of Financial
Economics, Vol. 53 No. 1, pp. 113-142.
Van der Walt, N. and Ingley, C. (2003), “Board dynamics and the infuence of professional
background, gender and ethnic diversity of directors”, Corporate Governance Journal,
Vol. 11 No. 3, pp. 218-234.
Williams, M.S. (2000), “Relationship between board structure and a frm’s intellectual capital
performance in an emerging economy”, Working Paper, University of Calgary, Canada.
Williams, M.S. (2001), “Corporate governance diversity and its impact on intellectual capital
performance in an emerging economy”, Working Paper, University of Calgary, Canada.
Wincent, J., Anokhin, S. and Ortqvist, D. (2010), “Does network board capital matter? A study of
innovative performance instrategic SMEnetworks”, Journal of Business Research, Vol. 63No. 3,
pp. 265-275.
Zaheer, S. (1995), “Overcoming the liability of foreignness”, Academy of Management Journal,
Vol. 38 No. 2, pp. 341-363.
Zahra, S.A. and Pearce, J.A. (1989), “Boards of directors and corporate fnancial performance: a
review and integrative model”, Journal of Management, Vol. 15 No. 2, pp. 291-334.
Zeghal, D. and Maaloul, A. (2010), “Analyzing value added as an indicator of intellectual capital
and its consequences on company performance”, Journal of Intellectual Capital, Vol. 11
No. 1, pp. 39-60.
Corresponding author
Mahfoudh Abdul Karem Mahfoudh Al-Musali can be contacted at: [email protected]
For instructions on how to order reprints of this article, please visit our website:
www.emeraldgrouppublishing.com/licensing/reprints.htm
Or contact us for further details: [email protected]
283
Intellectual
capital
performance
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
doc_335334146.pdf
The purpose of this paper is to investigate if the effectiveness of board meetings moderates
the relationship between board diversity (in terms of educational level and nationality) and intellectual
capital (IC) performance.
Accounting Research Journal
Board diversity and intellectual capital performance: The moderating role of the
effectiveness of board meetings
Mahfoudh Abdul Karem Mahfoudh Al-Musali Ku Nor Izah Ku Ismail
Article information:
To cite this document:
Mahfoudh Abdul Karem Mahfoudh Al-Musali Ku Nor Izah Ku Ismail , (2015),"Board diversity and
intellectual capital performance", Accounting Research J ournal, Vol. 28 Iss 3 pp. 268 - 283
Permanent link to this document:
http://dx.doi.org/10.1108/ARJ -01-2014-0006
Downloaded on: 24 January 2016, At: 20:51 (PT)
References: this document contains references to 69 other documents.
To copy this document: [email protected]
The fulltext of this document has been downloaded 381 times since 2015*
Users who downloaded this article also downloaded:
Michael Seamer, Adrian Melia, (2015),"Remunerating non-executive directors with stock options:
who is ignoring the regulator?", Accounting Research J ournal, Vol. 28 Iss 3 pp. 251-267 http://
dx.doi.org/10.1108/ARJ -12-2013-0092
Ning Du, Kevin Stevens, J ohn McEnroe, (2015),"The effects of comprehensive income on investors’
judgments: An investigation of one-statement vs. two-statement presentation formats", Accounting
Research J ournal, Vol. 28 Iss 3 pp. 284-299 http://dx.doi.org/10.1108/ARJ -11-2013-0083
Teng Zhou, J acqueline Birt, Michaela Rankin, (2015),"The value relevance of exploration
and evaluation expenditures", Accounting Research J ournal, Vol. 28 Iss 3 pp. 228-250 http://
dx.doi.org/10.1108/ARJ -09-2013-0067
Access to this document was granted through an Emerald subscription provided by emerald-
srm:115632 []
For Authors
If you would like to write for this, or any other Emerald publication, then please use our Emerald
for Authors service information about how to choose which publication to write for and submission
guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information.
About Emerald www.emeraldinsight.com
Emerald is a global publisher linking research and practice to the benefit of society. The company
manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as
well as providing an extensive range of online products and additional customer resources and
services.
Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the
Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for
digital archive preservation.
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
*Related content and download information correct at time of
download.
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
Board diversity and intellectual
capital performance
The moderating role of the effectiveness of
board meetings
Mahfoudh Abdul Karem Mahfoudh Al-Musali and
Ku Nor Izah Ku Ismail
School of Accounting, University Utara Malaysia, Sintok, Malaysia
Abstract
Purpose – The purpose of this paper is to investigate if the effectiveness of board meetings moderates
the relationship between board diversity (in terms of educational level and nationality) and intellectual
capital (IC) performance.
Design/methodology/approach – The empirical data are drawn from banks’ annual reports over the
three-year period of 2008 to 2010. Public’s value-added intellectual coeffcient method is applied to measure
IC performance. The frequency of board meetings is used a proxy for board meeting effectiveness.
Findings – Basedonthe hierarchical regressionanalysis, our results donot support the hypothesis that the
effect of board diversity on IC performance is positive as the effectiveness of board meetings increases.
Practical implications – Findings of this study indicate that there is a need for more effective
meetings through providing appropriate and suffcient information to directors, particularly in
strategic issues such as those related to IC that could make board members better prepared and more
involved in meetings.
Originality/value – This study adds to the literature, as it is the frst study that explores the variables
that could affect the relationship between board diversity and IC performance in the context of banks.
Keywords VAIC, GCC banks, Board meetings, Intellectual capital performance, Board diversity
Paper type Research paper
1. Introduction
Issues of intellectual capital (IC) performance and corporate governance have
increasingly attracted the attention of researchers, policy makers, regulatory bodies and
investors both from developed and emerging countries. With the advent of
knowledge-based economy, IC performance becomes crucially important for the growth
and development of frms in general, and knowledge-based frms such as banks in
particular, as the latter’s key resources are intangible and intellectual in nature (Ahuja
and Ahuja, 2012; Kamath, 2007; Goh, 2005). It is argued that the IC of banks is more
important than their physical capital in the process of wealth creation (Latif et al., 2012;
El-Bannany, 2008; Kamath, 2007; Goh, 2005). This is because banks provide
knowledge-based products or services (Shih et al., 2010) and it is the IC rather than
physical capital that determines the quality of services and products provided to
customers (Latif et al., 2012; Kamath, 2007; Goh, 2005). Hence, according to Ahuja and
Ahuja (2012), banks with better IC performance would likely be more successful than
The authors wishto express their gratitude to Universiti Utara Malaysia for fundingthis research.
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1030-9616.htm
ARJ
28,3
268
Received22 January2014
Revised3 April 2014
20 July2014
Accepted15 August 2014
Accounting Research Journal
Vol. 28 No. 3, 2015
pp. 268-283
©Emerald Group Publishing Limited
1030-9616
DOI 10.1108/ARJ-01-2014-0006
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
others, and those with poorer IC performance would need to take steps to improve their
performance if they want to succeed.
The GCC countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and Arab
Emirates) have expressed their interest in expanding their knowledge-based sectors in
line with their efforts to diversify their economy to reduce their high dependency on the
oil and gas sector as the main source of revenues (Randeree, 2012). The enrichment of the
mentality and intellectual capacity of a nation has become one of the areas targeted
under the GCC countries’ plans for growth and development (Ku Ismail and Abdul
Karem, 2011). According to Al-Muharrami and Matthews (2009), GCC countries share a
large number of economic, cultural and political similarities, which by far outweigh any
differences. The banking sector in most of the GCC countries is the second highest
contributor to the countries’ GDP after the oil and gas sector and it remains the
cornerstone of the non-oil GDP growth (Abu Loghod, 2010).
Research on IC performance of GCC banks documents that IC performance of GCC
banks is relatively low (Al-Musalli and Ku Ismail, 2012a, 2012b, 2011; Abdul Salam
et al., 2011; Ku Ismail and Abdul Karem, 2011). Thus, to be able to enhance IC
performance, GCC bank managers as well as regulators need to determine the factors
that may develop the IC or otherwise.
Corporate governance is considered an important determinant of IC performance.
According to Safeddine et al. (2009) and Keenan and Aggestam (2001), corporate
governance and IC are related. Keenan and Aggestam (2001, p.259) wrote: “Corporate
governance is responsible for creating, developing, and leveraging the IC residing in
the people, structures, and processes of the frm”.
A board of directors (being the most important internal mechanism of corporate
governance) is viewedas animportant tool to create, develop, leverage andmanage the ICof
a frm and thus, infuences frm performance (Abidin et al., 2009; Ho and Williams, 2003;
Williams, 2001). According to Williams (2001), boards of directors can structure relevant
strategies andpolicies onhowtoobtainandbest utilize the requiredresources underlyingIC.
Theoretically, it has been argued that the management of IC will require greater
innovation, perceptions and fexibility in the decision-making process (Williams, 2001),
which are more likely to exist in a board with greater diversity (Talke et al., 2010;
Wincent et al., 2010; Williams, 2001; Goodstein et al., 1994). The Upper echelon theory
suggests that diversity among board members help themto be more innovative, develop
more effective strategies and produce high-quality innovative decisions that will
improve the quality of actions taken by a frm(Certo et al., 2006; Auh and Menguc, 2005;
Carter et al., 2003). From the perspective of corporate governance, resource dependency
theory suggests that greater diversity among board members can lead to improved frm
performance through facilitating the acquisition of critical resources for an
organization, including IC (Goodstein et al., 1994).
However, despite its importance, little attention has been given by previous studies to
the potential impact of board diversity on IC performance. The emphasis of previous
studies was on the association between board size and board-independence-related
attributes such as percentage of outside directors, CEO duality and board ownership
and IC performance, producing inconclusive results (Abidin et al., 2009; Ho and
Williams, 2003; Williams, 2000). According to Keenan and Aggestam(2001), knowledge
and attitudes of board members, rather than the structure of the board, are more
important in managing IC. Previous studies that examined the relationship between
269
Intellectual
capital
performance
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
board diversity and IC performance provided empirical evidence that greater diversity
amongst members of the board of directors leads to improved frm IC performance
(Swartz and Firer, 2005; Williams, 2001, 2000). However, these studies focused only on
gender and ethnic diversity, but ignored other characteristics such as board educational
level diversity and nationality diversity.
It is argued that board diversity in terms of education level and nationality would
improve frm outcomes such as frm innovativeness (Talke et al., 2010; Wincent et al.,
2010), reputation (Miller and Triana, 2009; Mizruchi, 1996) and better understanding of
customer needs (Erhardt et al., 2003; Oxelheim and Randøy, 2003). These outcomes are
related and have important implications on IC performance. However, scholars like
Talke et al. (2010) and Certo et al. (2006) argue that board diversity does not affect frm
performance as much; they further suggest that instead of investigating a simple direct
relationship between board diversity and frm performance, variables that affect this
relationship should be explored. Carpenter (2002) suggests that inconsistencies in
diversity-performance relationships shown in prior studies may point to the possibility
that important moderating or intervening variables have been overlooked. Several
researchers have suggested that despite the merits of diversity among top managers, it
is also accompanied by costs (Talke et al., 2010; Auh and Menguc, 2006; Certo et al.,
2006). While the differences among board members may provide a board with a variety
in resources, these differences may also have problematic consequences with regard to
frm performance (Certo et al., 2006). Auh and Menguc (2005) stated that greater
diversity has been shown to cause process defciencies by plaguing effective operation
of the 4Cs (i.e. communication, collaboration, coordination and cohesiveness). Unless the
costs associated with a diverse board are attenuated, frm outcomes such as IC
performance will suffer as a result.
One aspect of resource dependency theory linked with corporate governance and
performance is the effectiveness of board meetings. This study proposes that the
effectiveness of board meetings can play a pivotal role in lessening the disadvantages
related to board diversity and would in fact lead to greater IC performance. We use the
number of board meetings as a proxy for board effectiveness. This proposition is based
on the idea that more frequent board meetings improve board effectiveness (Conger
et al., 1998). According to Wincent et al. (2010), frequent board meetings translate more
readily board knowledge, expertise and ties into improvements in frm outcomes. In
addition, using frequency of board meetings as a measure of board meeting
effectiveness is consistent with previous studies. It has been suggested that frequency of
board meetings as a contingent condition for board diversity would in fact lead to
greater frm outcomes (Wincent et al., 2010).
The effectiveness of meetings is not necessarily shown by the frequency of meetings.
It is also shown by the behavior of the individual board members in the meetings, such
as the preparation before meetings, attentiveness and participation during meetings and
post-meeting follow-ups (Carcello et al., 2002). However, the only measure that is
publicly available is the number of board meetings (Carcello et al., 2002). Therefore, this
study proposes that the effectiveness of board meetings (measured by the frequency of
board meetings) would moderate the board diversity-IC performance relationship.
Our fndings make two contributions to board-IC performance literature:
(1) This paper considers whether the effectiveness of board meetings change the
relationship between board diversity and IC performance.
ARJ
28,3
270
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
(2) The fndings of the study have implications for GCC banks and regulatory
authorities since high expectations are placed on corporate governance to
improve GCC banks’ performance.
In addition, the results of this study would be of interest to regulators in other countries
whose economic and cultural conditions are similar to that of the GCC countries.
The remainder of this paper is organized as follows. Section 2 reviews briefy the
literature on IC, and Section 3 develops the hypotheses. Section 4 discusses the research
methods, and Section 5 presents the results. Finally, Section 6 discusses the implications
of the fndings and concludes the paper.
2. Intellectual capital: defnition, classifcation and measurement
Until now, there has been no uniformor generally accepted defnition or classifcation of
IC (Ahuja and Ahuja, 2012; Chu et al., 2011; Zeghal and Maaloul, 2010). For the purpose
of this paper and consistent with previous studies such as Ho and Williams (2003),
Abidin et al. (2009) and Goh (2005), we adopted the defnition derived by the OECD
(2000). The OECD (2000, p. 6) defnes IC as “the economic value of two categories of
intangible assets of a frm:
(1) Human capital; and
(2) Organizational (structural) capital”.
Human capital (HC) is defned as the knowledge, qualifcations, experiences and skills of
employees that they take with them when they leave a frm (Zeghal and Maaloul, 2010;
Ross and Ross, 1997). Structural capital (SC) refers to the knowledge that remains with
the frm after the employees leave. SC is the result of HC’s past performances (Abdul
Salam et al., 2011). It includes production processes, organization management
processes, organizational routines, procedures, systems, cultures and databases,
information technology, customer relations and loyalty, supplier relation, frm brand
and reputation and so on (Ting and Lean, 2009; Goh, 2005).
According to Swartz and Firer (2005), the various conceptual, epistemological and
theoretical differences of the IC concept lead to the absence of a fully accepted measure
of IC performance. According to Chan (2009), there are 34 methods identifed in the
literature for measuring, evaluating and accounting for IC. Among these methods, the
Value-Added Intellectual Coeffcient (VAIC) method has been suggested by many
researchers as the most appropriate method to measure IC performance (Abdul Salam
et al., 2011; Joshi et al., 2010). According to Kamath (2007), the VAIC method is designed
to enable a frm to measure IC performance and it is considered appropriate for
knowledge-inclined frms such as banks.
3. Hypotheses development
Corporate governance literature uses the concept of board diversity to refer to board
composition and the varied combination of attributes, characteristics and expertise
contributed by individual board members in relation to board process and
decision-making (Van der Walt and Ingley, 2003). There is a growing recognition of the
value brought about by diverse board members in terms of education level and
nationality into the boardrooms in the GCC region, and one of the priority improvement
271
Intellectual
capital
performance
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
areas for boards in the region[1] is the recruitment of more foreign directors (GCC Board
Directors Institute, 2011).
Studies have suggested that board diversity could infuence IC performance by way
of promoting greater innovation and fexibility in the decision-making process. In
addition, board diversity would improve frms’ understanding of customers’ and
employees’ perceptions and needs, promote the willingness to change and adapt and
strengthen the frm’s relationship with internal and external stakeholder groups
(Al-Musalli and Ku Ismail, 2012a, 2012b; Williams, 2000, 2001; Swartz and Firer, 2005).
Diversity of educational level among board members refects their varying degrees of
knowledge and skills, thereby infuencing board capacity to generate more or less
creative solutions to resolve complex problems and provide a broader scope of inputs
that help to improve strategy formulation and evaluation (Ruigrok et al., 2006; Auh and
Menguc, 2006; Bantel and Jackson, 1989). It is argued that boards with greater
educational-level diversity are more likely to have greater information processing
capabilities, fexibility and better ability to adopt new ideas and to accept innovations
(Wincent et al., 2010; Talke et al., 2010). These characteristics could help directors in
structuring relevant strategies and policies on how to obtain and best utilize the IC
resources. Thus, educational-level diversity of board members could be advantageous
for GCC banks seeking to improve IC performance.
The GCC countries are occupied by more than 200 nationalities (Al-Khouri, 2010).
The region is one of the jurisdictions with the most diverse workforce in the world, in
which foreigners constitute 60 to 90 per cent of its workforce (Al-Khouri, 2010). Thus,
nationality diversity among board members (i.e. including foreign members) is expected
to affect bank ICperformance in ways similar to educational level diversity, particularly
banks’ relationships with employees and customers that constitute the most important
components of banks’ IC (Kamath, 2007). Williams (2001) claims that dissimilarities of
board members’ cultural backgrounds can contribute to different sociological
perceptions and a wider set of views that enables a board to be more sensitive to the
requirements of the workforce. This, thus, enhances a board’s ability to instigate more
comprehensive policies, strategies, activities and projects that create working
conditions that are attractive to a broader spectrum of potential employees and exploit
its existing human resources to its advantage.
Previous studies have further shown that board members fromdifferent nationalities
help frms to understand its culturally diverse customer base (i.e. particular customer
preferences and requirements) and to improve consumer policies that establish and
sustain long-termrelationships with customers (Randøy et al., 2006; Williams, 2001). As
highlighted earlier, despite the benefts of having boards of directors with greater
diversity, the costs of diversity are also noteworthy. It has been argued that diversity
could lead to conficts and negatively affect the effectiveness of communication in top
management (Carpenter, 2002). According to Goodstein et al. (1994), board diversity
may lead to potentially conficting conceptions of strategic change and limit a board’s
ability to take timely strategic actions. Consequently, excessive diversity can actually
affect IC performance negatively by impeding and hampering creative decision-making
related to IC. Therefore, the direct effect of board diversity on IC performance can be
mixed and ambiguous because of the dual impact of the benefts and costs associated
with board diversity. Based on resource dependency theory, this study posits that the
effectiveness of board meetings could help in lessening the disadvantages related to
ARJ
28,3
272
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
board diversity. Thus, the effect of board diversity in terms of educational-level
diversity and nationality diversity on IC performance will be positive as the
effectiveness of board meetings improves.
The frequency of board meetings is an important mechanism to ensure that issues
are discussed in suffcient depths, and board members get more opportunities to confer
and to set strategies (Vafeas, 1999; Zahra and Pearce, 1989). Simon et al. (1999) found
that debates and discussions among top management team members increase the
tendency of diversity to enhance frm performance, arguing that through debates and
in-depth discussions, team members are likely to draw on their diversity by rethinking
their points of viewand consider factors they had not been previously considered. Simon
et al. (1999) further contended that debates among team members can help overcome
board diversity-related problems such as poor communication and coordination. This,
in particular, may improve the effects of board diversity on a board’s ability to provide
better advice and counsel on strategic issues to management and effectively participate
in formulating IC-related strategies and policies that help a frm to retain, develop and
best utilize resources underlying IC which will ultimately increase IC performance.
Wincent et al. (2010) argue that frequent board meetings may improve innovative
performance of frms in that it increases the likelihood of consensus among directors and
helps to handle uncertainties. IC performance, consequently, could be improved since
innovation increases a frm’s stake of intangibles and facilitates IC development
(Marques et al., 2006). According to Rabi et al. (2010), frequent board meetings helps
board members to evaluate R&Dprojects more thoroughly and enables themto monitor
and supervise the progress of any R&Dprojects and take necessary actions for projects
that are not progressing successfully. This will ultimately help to improve IC
performance. Accordingly, we propose the following contingency hypothesis that
summarizes our central argument:
H1. Board diversity (i.e. educational-level diversity and nationality diversity) and the
effectiveness of board meetings will infuence IC performance through their
interaction effect. Diverse boards with more effective board meetings will have a
higher level of ICperformance comparedto diverse boards withless effective board
meetings.
4. Methods
Our sample frame comprises of all listed banks in the GCC countries during the period
2008-2010. Due to the inaccessibility of some of the annual reports and incomplete data
in some, the fnal sample consists of 128 bank-years, distributed as in Table I. All
Kuwaiti-listed banks are excluded fromthe sample due to missing relevant information.
Out of the 128 observations, 43 are from 2008, 44 from 2009 and 41 from 2010.
Table I.
Number and types of
GCC banks
Country Conventional banks Islamic bank Total
Bahrain 23 13 36
Oman 17 0 17
Qatar 9 6 15
Saudi Arabia 20 5 25
UAE 23 12 35
Total 92 36 128
273
Intellectual
capital
performance
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
We apply VAIC method developed by Pulic (1998) in measuring IC performance. It is a
widely used method (Abdul Salam et al., 2011; Joshi et al., 2010) and is suggested by
many researchers as the most appropriate method to measure IC performance (Abdul
Salamet al., 2011; Joshi et al., 2010; Ting and Lean, 2009; Chan, 2009; Kamath, 2007; Goh,
2005). One of the advantages of the VAIC method is that it has a history of deployment
and application in IC performance research (Komnenic and Pokrajcic, 2012).
Algebraically, VAIC is expressed as follows:
VAIC ? CEE ? HCE ? SCE (1)
Where:
• CEE is an indicator of Value-Added effciency of capital employed (CEE ? VA/
CE); CE ?(book value of total assets) ?(intangible assets) ?(fnancial assets) ?
(physical assets);
• HCE is an indicator of value-added effciency of HC (HCE ?VA/HC); HC ?total
salaries and wages; and
• SCE is an indicator of Value-Added effciency of SC (SCE ?SC/VA), SC?VA –
HC ? (value added) ? (total salaries & wages). IC effciency (ICE) is the sum of
human capital effciency (HCE) and structural capital effciency (SCE). Total VA
is calculated by using information contained in the annual report as follows:
VA ? OP ? EC ? D ? A (2)
Where, OP?Operating Profts; EC?Total Employee Expenses; and D?Depreciation;
and A ?Amortization.
We use Blau’s index to measure board diversity (in terms of educational level and
nationality). Blau’s index is described as an ideal measure to capture diversity and
variations within a group of people because it meets the four criteria for a good measure
of diversity: it varies from zero (representing no diversity) to theoretical maximum of
one. Larger numbers indicate greater diversity. The index is bounded and assumes that
there are no negative values (Miller and Triana, 2009). Educational-level diversity is
measured using Blau’s index by calculating the following mathematical equation:
Educational level diversity ? 1 ? ?(Pi)
2
, where, p ? the percentage of board
members in each educational category and i ? the number of different educational
categories represented on the board. Consistent with previous studies, the maximum
educational level of each board member is identifed within four categories:
(1) Without a bachelor’s degree;
(2) Bachelor’s degree;
(3) Master’s degree; and
(4) Doctoral degree (Talke et al., 2010 and Kim and Lim, 2010).
Similarly, nationality diversity is calculated as 1 ??(Pi)
2
, where, p ?the percentage of
board members in each nationality category, i ? the number of different nationality
categories represented on the board. This study identifes two categories to capture
nationality diversity: locals and foreigners. This measurement is similar to the study by
ARJ
28,3
274
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
Darmadi (2011) and Ruigrok et al. (2006). The effectiveness of board meetings is
measured as the number of board meetings per year (Wincent et al., 2010; Vafeas, 1999).
This study employs several control variables. Al-Musalli and Ku Ismail (2012b)
found that board size and representation of independent directors have an important
impact on ICperformance of GCCbanks. Therefore, this study controlled for the effect of
board size, measured as the total number of directors serving on a board, and
representation of independent directors measured as the number of independent
directors on a board (Abeysekera, 2010). Following previous studies, we also control for
other determinants of IC performance, that is, bank size and fnancial performance,
measured by the natural log of total assets and return on equity, respectively. We further
set a dummy variable to control for the global fnancial crisis, whose value is 1 for the
years 2008 and 2009, and 0 otherwise.
We employ hierarchical regression analysis to test the moderating effect of the
effectiveness of board meetings on the relationship between board diversity and IC
performance. Following Baron and Kenny (1986), we enter control variables in the frst
hierarchical step. We enter the independent variables in the second step to examine the
relative direct contribution of board demographic diversity. The moderator variable is
entered in the third step, and the interaction terms are entered in the fnal regression model.
5. Results
The correlation matrix and descriptive statistics are presented in Table II. An
examination of the correlation matrix suggests that multicolinearity is not a problemin
the regression procedure since the correlation coeffcients between independent
variables are less than 0.7 (Hair et al., 2006), and none of the variance infation factors
approach the threshold value of 10 (Kline, 2005). However, when the interaction terms
for testing the moderating effects are entered in the regression model, there is a
multicollinearity problem. Thus, to reduce multicollinearity, all variables used to
construct the interaction terms are standardized (Aguinis and Gottfredson, 2010).
Table III shows the results of the four-step hierarchical analysis. In the frst step, the
R
2
indicates that 51.3 per cent of the level of IC performance can be explained by the
control variables. By adding the independent variables in Step 2, R
2
increased to 0.52.
However, this increase in R
2
(?R
2
?0.008) is statistically insignifcant (p ?0.10). This
implies that board diversity in terms of educational level and nationality does not
Table II.
Means, standard
deviations and
correlations among
all variables
Variable Mean SD 1 2 3 4 5 6 7
1. Educational level diversity 0.47 0.15
2. Nationality diversity 0.22 0.19 0.234**
3. Board size 9.16 1.91 0.245** 0.114
4. Number of independent
directors 4.78 2.09 0.129 0.105 0.269**
5. Financial performance 0.11 0.13 ?0.005 ?0.220** 0.092 0.008
6. Bank size 9.86 0.59 ?0.046 ?0.091 0.413** 0.118 0.317**
7. Global fnancial crisis 0.051 0.017 0.041 0.048 0.114 ?0.041
8. IC performance 4.20 2.7 ?0.149* ?0.223* ?0.080 ?0.196* 0.672** 0.247** 0.042
Notes: n ?128; *p ?0.05; **p ?0.01
275
Intellectual
capital
performance
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
Table III.
Results of
hierarchical
regression analysis
V
a
r
i
a
b
l
e
s
S
t
e
p
1
S
t
e
p
2
S
t
e
p
3
S
t
e
p
4
B
o
a
r
d
s
i
z
e
?
0
.
1
9
4
*
*
(
?
1
.
9
3
2
)
?
0
.
1
5
4
*
(
?
1
.
4
7
5
)
?
0
.
1
5
5
*
(
?
1
.
4
9
6
)
?
0
.
1
5
9
*
(
?
1
.
5
4
2
)
R
e
p
r
e
s
e
n
t
a
t
i
o
n
o
f
i
n
d
e
p
e
n
d
e
n
t
d
i
r
e
c
t
o
r
s
?
0
.
2
2
9
*
*
*
(
?
2
.
7
2
8
)
?
0
.
2
1
9
*
*
*
(
?
2
.
5
9
7
)
?
0
.
2
3
2
*
*
*
(
?
2
.
7
5
3
)
?
0
.
2
6
1
*
*
*
(
?
3
.
0
5
8
)
B
a
n
k
s
i
z
e
0
.
5
3
5
*
(
1
.
6
0
0
)
0
.
4
5
5
*
(
1
.
3
4
0
)
0
.
4
1
9
(
1
.
2
4
1
)
0
.
4
2
7
(
1
.
2
7
0
)
F
i
n
a
n
c
i
a
l
p
e
r
f
o
r
m
a
n
c
e
1
2
.
6
1
6
*
*
*
(
9
.
6
8
9
)
1
2
.
5
7
8
*
*
*
(
9
.
9
4
4
)
1
2
.
8
2
4
*
*
*
(
9
.
6
4
5
)
1
2
.
6
8
9
*
*
*
(
9
.
5
9
4
)
G
l
o
b
a
l
f
n
a
n
c
i
a
l
c
r
i
s
i
s
?
0
.
1
7
6
(
?
0
.
4
8
0
)
?
0
.
1
5
6
(
?
0
.
4
2
7
)
?
0
.
1
5
1
(
?
0
.
4
1
6
)
?
0
.
0
8
9
(
?
0
.
2
4
6
)
E
d
u
c
a
t
i
o
n
a
l
l
e
v
e
l
d
i
v
e
r
s
i
t
y
?
0
.
2
5
7
(
?
1
.
2
7
7
)
?
0
.
2
2
9
(
?
1
.
1
4
2
)
?
0
.
2
4
9
(
?
1
.
2
4
4
)
N
a
t
i
o
n
a
l
i
t
y
d
i
v
e
r
s
i
t
y
?
0
.
0
5
0
(
?
0
.
2
7
4
)
?
0
.
0
4
0
(
?
0
.
2
2
0
)
?
0
.
0
9
3
(
?
0
.
5
1
1
)
E
f
f
e
c
t
i
v
e
n
e
s
s
o
f
b
o
a
r
d
m
e
e
t
i
n
g
s
0
.
2
8
3
*
*
(
1
.
6
9
0
)
0
.
2
0
9
(
1
.
2
2
8
)
E
d
u
c
a
t
i
o
n
a
l
l
e
v
e
l
d
i
v
e
r
s
i
t
y
*
e
f
f
e
c
t
i
v
e
n
e
s
s
o
f
b
o
a
r
d
m
e
e
t
i
n
g
s
0
.
0
1
1
(
0
.
0
4
6
)
N
a
t
i
o
n
a
l
i
t
y
d
i
v
e
r
s
i
t
y
*
e
f
f
e
c
t
i
v
e
n
e
s
s
o
f
b
o
a
r
d
m
e
e
t
i
n
g
s
?
0
.
3
8
1
*
*
(
?
1
.
9
3
4
)
R
2
0
.
5
1
3
0
.
5
2
0
0
.
5
3
1
0
.
5
4
6
A
d
j
u
s
t
e
d
R
2
0
.
4
9
3
0
.
4
9
2
0
.
5
0
0
0
.
5
0
7
R
2
c
h
a
n
g
e
0
.
5
1
3
0
.
0
0
8
0
.
0
1
1
0
.
0
1
5
S
i
g
n
i
f
c
a
n
t
F
c
h
a
n
g
e
0
.
0
0
0
0
.
3
8
3
0
.
0
9
4
0
.
1
5
6
D
u
r
b
i
n
W
a
t
s
o
n
1
.
7
1
8
N
o
t
e
s
:
n
?
1
2
8
f
o
r
a
l
l
m
o
d
e
l
s
;
u
n
s
t
a
n
d
a
r
d
i
z
e
d
c
o
e
f
f
c
i
e
n
t
s
a
r
e
r
e
p
o
r
t
e
d
;
t
h
e
f
g
u
r
e
s
i
n
p
a
r
e
n
t
h
e
s
e
s
a
r
e
t
v
a
l
u
e
s
;
*
p
?
0
.
1
0
;
*
*
p
?
.
0
.
0
5
;
*
*
*
p
?
0
.
0
1
ARJ
28,3
276
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
contribute in explaining the variation in IC performance. This result is consistent with
those of Al-Musalli and Ku Ismail (2012a).
The inclusion of the moderator variable (board meeting effectiveness) in Step 3
results in a statistically signifcant increase in R
2
(p ? 0.05, one tail). This result
indicates that there is a major effect of the moderator variable on the dependent variable
(quasi moderator). When the interaction terms are entered into the regression equation
(Step 4 of Table II), there is a signifcant increase in model ft for regression equations
that predict IC performance (?R
2
?0.015; p ?0.10, one tail).
Upon the inspection of the beta coeffcient for interaction terms, we found that only one
interaction out of the two interactions produced a signifcant relationship. The interaction
between board nationality diversity and the effectiveness of board meetings produced a
signifcant result. However, the effect on IC performance is negative, which is in
contradiction with the hypothesized relationship (? ? ?0.385, p ? 0.05, one tail). This
fndingisgraphicallypresentedinFigure1. Theinteractionbetweenboardeducational-level
diversity and the effectiveness of board meetings has an insignifcant effect on IC
performance (? ?0.010, p ?0.10). Overall, our fndings suggest that our hypothesis is not
supported. We next discuss our fndings and their implications in detail.
A graph on the relationship between the IC performance and board nationality
diversity with board meeting effectiveness in Figure 1 shows the same direction for
banks that practice either more or less effective board meetings. Both lines indicate a
negative relationship between board nationality diversity and the IC performance, with
less effective board meetings being much steeper than more effective board meetings.
Figure 1.
Relationship between
board nationality
diversity and IC
performance with the
effectiveness of
board meetings as
the moderator
277
Intellectual
capital
performance
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
The increase in board nationality diversity leads to less IC performance when there is a
practice of frequent board meetings.
6. Study implications
The fndings of this studyshowthat boarddemographic diversity(i.e. educational level and
nationality) is not related to IC performance of banks. Thus, the study fails to support the
resource dependency theory and upper echelon theory in terms of the association between
educational-level diversity, nationalitydiversityandICperformance of banks. However, the
fndings seemto support the theoretical assumption by scholars like Talke et al. (2010) and
Certo et al. (2006) that board demographic diversity exhibits no main effect on frm
performance. They suggest that instead of investigating a simple direct relationship
between board demographic diversity and frm performance, variables that affect this
relationship should be explored.
A possible reason for the insignifcant relationship between board educational level
diversity and bank IC performance is that GCC directors are working in an environment
characterized by high information asymmetry problem (Chahine, 2007). GCC board
members state that they do not receive suffcient and appropriate information about
corporate strategyandindustrytrends as well as organizational information. Consequently,
theydo not activelyparticipate inboardmeetings (BDI, 2011). As a result, GCCboards could
not beneft fromthe opportunity of having a diverse level of academic qualifcations, which
provide diverse skills of research and analysis. This situation might provide a possible
explanation for the insignifcant moderating effect of the effectiveness of board meetings on
the relationship between educational-level diversity and IC performance. According to the
GCC Board of Directors Institute survey, 82 per cent of the GCC board members state that
they do not receive the appropriate information to prepare ahead for meetings (GCC Board
Directors Institute, 2011). GCC board members state that they do not receive suffcient and
appropriate information about corporate strategy and industry trends as well as
organizational information, and consequently they do not actively participate in board
meetings (GCC Board Directors Institute, 2011). Arguably, as a result of not receiving
suffcient and appropriate strategic information, GCC banks’ board members who lack the
necessary skills and adequate understanding of the banking environment (OECD, 2009) are
less likely to actively participate in meetings and less involved in strategic decisions such as
those related to IC development.
With respect to board nationality diversity, although information asymmetry problem
affects both foreign and local directors, there are differences in the level of information
asymmetry between these two types of directors (Zaheer, 1995). Foreign directors have
larger asymmetries of information about frmactivities than domestic directors because as
foreigners they are not as well embedded in the networks of information in the host country
(Zaheer, 1995). In addition, local directors are better connected and communicated with the
managers (Chahine and Tohme, 2009). Hence, due to their poor amount of frm-specifc
information, foreign directors in GCC banks may not be able to make signifcant
contributions relatedto ICdevelopment. However, contraryto the expectations, the fndings
showa statistically signifcant negative interaction of both board nationality diversity and
the frequency of board meetings for bank IC performance. A possible explanation for this
unexpected fnding is that under this condition, perhaps when boards with many directors
from foreign nationality meet regularly, they tend to change strategic plans and overly
complicate things. Thus, frequent meetings with many foreign directors may create stress,
ARJ
28,3
278
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
confict and uncertainty among highly nationality diverse boards which is
counterproductive and impedes the generalization of good IC-related decisions and
strategies. Anegative IC performance is the result.
The insignifcant effect of educational-level diversity on IC performance suggests
that merely a diverse level of academic qualifcations, which provide diverse skills of
research and analysis, does not add value to IC performance, but there is a need for
identifying the importance of bank-relevant skill sets that are appropriate for GCC
banks. Similarly, nationality diversity is not signifcantly related to IC performance.
Consequently, this raises concerns of the benefts of recruiting more foreign nationals on
the boards of GCC banks (as recommended by GCC corporate governance institutions),
suggesting that this procedure is not a quick way to enhance IC performance. A policy
implication from this fnding is that more research is needed to understand whether
foreign members experience diffculties in promoting better corporate governance and
adding value to IC performance of GCC banks.
With respect to the effectiveness of board meetings, fndings of this study indicate
that there is a need for more effective meetings through providing appropriate and
suffcient information to directors particularly in strategic issues such as those related to
IC. By doing so, board members would be better prepared and more involved in
meetings. In addition, fndings of this study may lend support to the recommendation
issued recently by GCCBoard Directors Institute (2011) that GCCboards need to allocate
more time to discuss strategic issues.
The fndings of this study warrant further investigation on the nature of the role played
by independent directors of GCC banks in developing IC performance. As a high number of
independent directors is found to be associated with low IC performance, the GCC policy
makers and regulators must analyze whether the recommendations for GCC banks to have
a board of directors dominated by independent directors is appropriate. The regulators
should bear in mind that GCCbanks are operating in small stock markets and it may not be
easyfor themtohave qualifedindependent directors due totheir lackof expertise, skills and
knowledge in understanding the banking environment (OECD, 2009). In addition, due to the
high information asymmetry in the GCC banking sector, it is less likely that banks would
beneft from having a large number of independent directors. Furthermore, the dominant
role of the controlling shareholders in nominating and selecting independent directors may
prevent banks fromappointing “truly” independent directors.
Finally, the insignifcant effect of global fnancial crisis on ICperformance of GCCbanks
may be attributed to the macro intervention policies taken by GCCgovernments which help
to mitigate the adverse impact of the current global fnancial crisis. According to Khamis
andSenhadji (2010), despite the sharpdecline inoil revenues, GCCgovernments maintained
or even increased their spending levels to offset the fallout fromthe crisis. The intervention
policies taken by the GCC governments may create an atmosphere that creates confdence
among GCC banks and helps themcontinue to implement their activities normally.
Note
1. Although in the popular press, diversity is almost always synonymous with gender and ethnic
diversity (Knight et al., 1999), and this study ignores these two demographic characteristics. This
is because GCC countries do not include ethnic groups and there is a weak presence of women on
the boards ranging from 0.1 per cent in Saudi Arabia to 2.7 per cent in Kuwait (The National
Investor, 2008).
279
Intellectual
capital
performance
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
References
Abdul Salam, F., Al-Qaheri, H. and Al-Khayyat, R. (2011), “The intellectual capital performance of
Kuwaiti banks: an application of VAIC model”, available at: www.SciRP.org/journal/ib
Abeysekera, I. (2010), “The infuence of board size on intellectual capital disclosure by Kenyan
listed frms”, Journal of Intellectual Capital, Vol. 11 No. 4, pp. 504-518.
Abidin, Z.Z., Kamal, N.M. and Jusoff, K. (2009), “Board structure and corporate performance in
Malaysia”, International Journal of Economics and Finance, Vol. 1 No. 1, pp. 150-164.
AbuLoghod, H. (2010), “Do Islamic banks performbetter thanconventional banks? Evidence from
gulf cooperation council countries”, Working Paper No 1011, available at: www.arabapi.
org/jodep/products/delivery/wps1011.pdf
Aguinis, H. and Gottfredson, R. (2010), “Best-practice recommendations for estimating interaction
effects using moderated multiple regression”, Journal of Organizational Behavior, Vol. 31
No. 6, pp. 776-786.
Ahuja, B.R. and Ahuja, N.L. (2012), “Intellectual capital approach to performance evaluation: a
case study of the banking sector in India”, International Research Journal of Finance and
Economics, No. 93, pp. 110-122.
Al-Khouri, A.M. (2010), “The challenge of identity in a changing world: the case of GCCcountries”,
The 21st-Century Gulf: The Challenge of Identity 2010 Proceedings, Exeter University, Gulf
Studies Conference, pp. 1-7.
Al-Muharrami, S. and Matthews, K. (2009), “Market power versus effcient-structure in Arab GCC
banking”, Applied Financial Economics, Vol. 19 No. 18, pp. 1487-1496.
Al-Musalli, M.A. and Ku Ismail, K.N.I. (2011), “Intellectual capital performance of the national
united Arab Emirates listed banks”, 7th Asia-Pacifc Management Accounting Association
APMAA Proceeding: Management Accounting: A Value Creation Tool for Sustainability,
17-19 November 2011, Kuala Lumpur, Malaysia.
Al-Musalli, M.A. and Ku Ismail, K.N.I. (2012a), “Intellectual capital performance and board
characteristics of GCC banks”, GSTF Business Review, Vol. 2 No. 1, pp. 80-86.
Al-Musalli, M.A. and Ku Ismail, K.N.I. (2012b), “Corporate governance, bank specifc
characteristics, banking industry characteristics, and intellectual capital performance of
banks in Arab gulf cooperation council countries”, Asian Academy Management Journal of
Accounting & Finance, Vol. 8, pp. 115-135.
Auh, S. and Menguc, B. (2005), “The infuence of top management team functional diversity
on strategic orientations: the moderating role of environmental turbulence and
inter-functional coordination”, International Journal of Research in Marketing, Vol. 22
No. 3, pp. 333-350.
Auh, S. and Menguc, B. (2006), “Diversity at the executive suite: a resource-based approach to the
customer orientation–organizational performance relationship”, Journal of Business
Research, Vol. 59 No. 5, pp. 564-572.
Bantel, K.A. and Jackson, S.E. (1989), “Top management and innovations in banking: does the
composition of the top team make a difference?”, Strategic Management Journal, Vol. 10
No. S1, pp. 107-124.
Baron, R.M. and Kenny, D.A. (1986), “The moderator-mediator variable distinction in social
psychological research: conceptual, strategic and statistical considerations”, Journal of
Personality and Social Psychology, Vol. 51 No. 6, pp. 1173-1182.
Carcello, J.V., Hermanson, D.R., Neal, T.L. and Riley, R.A. (2002), “Board characteristics and audit
fees”, Contemporary Accounting Research, Vol. 19 No. 2, pp. 365-384.
ARJ
28,3
280
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
Carpenter, M.A. (2002), “The implications of strategy and social context for the relationship
between top management team heterogeneity and frm performance”, Strategic
Management Journal, Vol. 23 No. 3, pp. 275-284.
Carter, D.A., Simkins, B.J. and Simpson, W.G. (2003), “Corporate governance, board diversity, and
frm value”, Finance Review, Vol. 38 No. 1, pp. 33-53.
Certo, S.T., Lester, R.H., Dalton, C.M. and Dalton, D.R. (2006), “Top management teams, strategy
and fnancial performance: a meta-analytic examination”, Journal of Management Studies,
Vol. 43 No. 4, pp. 813-839.
Chahine, S. (2007), “Activity-based diversifcation, corporate governance, and the market
valuation of commercial banks in the Gulf commercial council”, Journal of Management
Governance, Vol. 11 No. 4, pp. 353-382.
Chahine, S. and Tohme, N.S. (2009), “Is CEO duality always negative? An exploration of CEO
duality and ownership structure in the Arab IPO context”, Corporate Governance: An
International Review, Vol. 17 No. 2, pp. 123-141.
Chan, K.H. (2009), “Impact of intellectual capital on organizational performance: an empirical study of
companies in the Hang Seng index”, The Learning Organization, Vol. 16 No. 1, pp. 4-21.
Chu, S.K.W., Chan, K.H. and Wu, W.W.Y. (2011), “Charting intellectual capital performance of the
gateway to China”, Journal of Intellectual Capital, Vol. 12 No. 2, pp. 249-276.
Conger, J.A., Finegold, D. and Lawler, E.E. (1998), “Appraising boardroomperformance”, Harvard
Business Review, Vol. 76, pp. 136-148.
Darmadi, S. (2011), “Board diversity and frm performance: the Indonesian evidence”, Corporate
Ownership and Control, Vol. 9 No. 1, pp. 524-539.
El-Bannany, M. (2008), “Astudy of determinants of intellectual capital performance in banks: the
UK case”, Journal of Intellectual Capital, Vol. 9 No. 3, pp. 487-498.
Erhardt, N.L., Werbel, J.D. and Shrader, C.B. (2003), “Board of director diversity and frmfnancial
performance”, Corporate Governance Journal, Vol. 11 No. 2, pp. 102-111.
GCC Board Directors Institute (BDI) (2011), Embarking on a Journey: A Review of Board
Effectiveness in the Gulf, GCC Board Directors Institute, Dubai.
Goh, P.C. (2005), “Intellectual capital performance of commercial banks in Malaysia”, Journal of
Intellectual Capital, Vol. 6 No. 3, pp. 385-396.
Goodstein, J., Gautam, K. and Boeker, W. (1994), “The effects of board size and diversity on
strategic change”, Strategic Management Journal, Vol. 15 No. 3, pp. 241-325.
Hair, J.F., Bush, R.P. and Ortinau, D.J. (2006), Marketing Research Within a Change Information
Environment, 3rd ed., Mcgraw-Hill, New York, NY.
Ho, C.A. and Williams, S.M. (2003), “International comparative analysis of the association between
board structure and the effciency of value added by a frm from its physical capital and
intellectual capital resources”, The International Journal of Accounting, Vol. 38 No. 4,
pp. 465-491.
Joshi, M., Cahill, D. and Sidhu, J. (2010), “Intellectual capital performance in the banking sector: an
assessment of Australian owned banks”, Journal of Human Resource Costing and
Accounting, Vol. 14 No. 2, pp. 151-170.
Kamath, G.B. (2007), “The intellectual capital performance of Indian banking sector”, Journal of
Intellectual Capital, Vol. 8 No. 1, pp. 96-123.
Keenan, J. and Aggestam, M. (2001), “Corporate governance and intellectual capital: some
conceptualizations”, Corporate Governance Journal, Vol. 9 No. 4, pp. 259-275.
281
Intellectual
capital
performance
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
Khamis, M. and Senhadji, A. (2010), Impact of the Global Financial Crisis on the Gulf Cooperation
Council Countries and Challenges Ahead: An Update, International Monetary Fund,
Publication Services, Washington, DC.
Kim, H. and Lim, C. (2010), “Diversity, outside directors and frm valuation: Korean evidence”,
Journal of Business Research, Vol. 63 No. 3, pp. 284-291.
Kline, R.B. (2005), Principles and Practice of Structural Equation Modelling, 2nd ed., Guilford
Press, New York, NY.
Knight, D., Pearce, C.L., Smith, K.G., Olian, J.D., Sims, H.P. and Smith, K.A. (1999), “Top
management team diversity, group process, and strategic consensus”, Strategic
Management Journal, Vol. 20 No. 5, pp. 445-465.
Komnenic, B. and Pokrajcic, D. (2012), “Intellectual capital and corporate performance of MNCs in
Serbia”, Journal of Intellectual Capital, Vol. 13 No. 1, pp. 106-119.
Ku Ismail, K.N.I. and Abdul Karem, M. (2011), “Intellectual capital and the fnancial performance of
banks in Bahrain”, Journal of Business Management and Accounting, Vol. 1 No. 1, pp. 63-77.
Latif, M., Malik, M.S. and Aslam, S. (2012), “Intellectual capital effciency and corporate
performance in developing countries: a comparison between Islamic and conventional
banks of Pakistan”, Interdisciplinary Journal of Contemporary Research in Business, Vol. 4
No. 1, pp. 405-420.
Marques, D.P., Simon, F.J.G. and Caranana, C.D. (2006), “The effect of innovation on intellectual
capital: an empirical evaluation in the biotechnology and telecommunication industries”,
International Journal of Innovation Management, Vol. 10 No. 1, pp. 89-112.
Miller, T. and Triana, M.C. (2009), “Demographic diversity in the boardroom: mediators of the board
diversity-frm performance relationship”, Journal of Management Studies, Vol. 46 No. 5,
pp. 755-786.
Mizruchi, M.S. (1996), “What do interlocks do? An analysis, critique, and assessment of research
on interlocking directorates”, Annual Review of Sociology, Vol. 22, pp. 271-298.
Organization for Economic Co-operation and Development (OECD) (2000), Final Report:
Measuring and Reporting Intellectual Capital, Organization for Economic Co-operation and
Development (OECD), Paris.
Organization for Economic Co-operation and Development (OECD) (2009), Policy Brief on
Improving Corporate Governance of Banks in the Middle East and North Africa Region,
Organization for Economic Co-Operation and Development (OECD), Paris.
Oxelheim, L. and Randøy, T. (2003), “The impact of foreign board membership on frm value”,
Journal of Banking and Finance, Vol. 27 No. 12, 2369-2392.
Pulic, A. (1998), “Measuring the performance of intellectual potential in knowledge economy”,
available at: www.measuring ip.at/Opapers/Pulic/Vaictxt.vaictxt.html
Rabi, N.M., Zulkafi, A.H. and Hatt, M.H.C. (2010), “Corporate governance, innovation investment
and frm performance: evidence from Malaysian public listed companies”, Economia Seria
Management, Vol. 13 No. 2, pp. 225-239.
Randeree, K. (2012), “Workforce nationalization in the Gulf cooperation council states”, available
at: hawk.ethz.ch/[…]/en/KasimRandereeCIRSOccasionalPaper9.pdf
Randøy, T., Oxelheim, L. and Thomsen, S. (2006), “A Nordic perspective on corporate board
diversity (Nordic Innovation Centre project No 05030)”, available at: www.
nordicinnovation.org/Global/_Publications/Reports/2006/The%20performance%
20effects%20of%20board%20diversity%20in%20Nordic%20Firms.pdf
Ross, G. and Ross, J. (1997), “Measuring your company’s intellectual performance”, Long Range
Planning, Vol. 30 No. 3, pp. 413-426.
ARJ
28,3
282
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
Ruigrok, W., Peck, S., Tacheva, S., Greve, P. and Hu, Y. (2006), “The determinants and effects of board
nomination committees”, Journal of Management Governance, Vol. 10 No. 2, pp. 119-148.
Safeddine, A., Jamali, D. and Noureddine, S. (2009), “Corporate governance and intellectual capital:
evidence fromanacademic institution”, Corporate Governance Journal, Vol. 9 No. 2, pp. 146-157.
Shih, K., Chang, C. and Lin, B. (2010), “Assessing knowledge creation and intellectual capital in
banking industry”, Journal of Intellectual Capital, Vol. 11 No. 1, pp. 74-89.
Simon, T., Pelled, L.H. and Smith, K.A. (1999), “Making use of difference: diversity, debate, and
decision comprehensiveness in top management teams”, Academy of Management Journal,
Vol. 42 No. 6, pp. 662-673.
Swartz, N.P. and Firer, S. (2005), “Board structure and intellectual capital performance in South
Africa”, Meditari Accountancy Research, Vol. 13 No. 2, pp. 145-166.
Talke, K., Salomo, S. and Rost, K. (2010), “How top management team diversity affects
innovativeness and performance via the strategic choice to focus on innovation felds”,
Research Policy, Vol. 39 No. 7, pp. 907-918.
The National Investor (TNI) (2008), A Survey of GCC Boards, The National Investor, Abu Dhabi.
Ting, I.W.K. and Lean, H.H. (2009), “Intellectual capital performance of fnancial institutions in
Malaysia”, Journal of Intellectual Capital, Vol. 10 No. 4, pp. 588-599.
Vafeas, N. (1999), “Board meeting frequency and frm performance”, Journal of Financial
Economics, Vol. 53 No. 1, pp. 113-142.
Van der Walt, N. and Ingley, C. (2003), “Board dynamics and the infuence of professional
background, gender and ethnic diversity of directors”, Corporate Governance Journal,
Vol. 11 No. 3, pp. 218-234.
Williams, M.S. (2000), “Relationship between board structure and a frm’s intellectual capital
performance in an emerging economy”, Working Paper, University of Calgary, Canada.
Williams, M.S. (2001), “Corporate governance diversity and its impact on intellectual capital
performance in an emerging economy”, Working Paper, University of Calgary, Canada.
Wincent, J., Anokhin, S. and Ortqvist, D. (2010), “Does network board capital matter? A study of
innovative performance instrategic SMEnetworks”, Journal of Business Research, Vol. 63No. 3,
pp. 265-275.
Zaheer, S. (1995), “Overcoming the liability of foreignness”, Academy of Management Journal,
Vol. 38 No. 2, pp. 341-363.
Zahra, S.A. and Pearce, J.A. (1989), “Boards of directors and corporate fnancial performance: a
review and integrative model”, Journal of Management, Vol. 15 No. 2, pp. 291-334.
Zeghal, D. and Maaloul, A. (2010), “Analyzing value added as an indicator of intellectual capital
and its consequences on company performance”, Journal of Intellectual Capital, Vol. 11
No. 1, pp. 39-60.
Corresponding author
Mahfoudh Abdul Karem Mahfoudh Al-Musali can be contacted at: [email protected]
For instructions on how to order reprints of this article, please visit our website:
www.emeraldgrouppublishing.com/licensing/reprints.htm
Or contact us for further details: [email protected]
283
Intellectual
capital
performance
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
0
:
5
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
doc_335334146.pdf