Intellectual capital and profitability in an emerging insurance market

Abstract

Purpose The purpose of this paper is to examine the relationship between intellectual capital (IC) and profitability of insurance companies in Ghana. Design/methodology/approach Data on 36 life and non-life insurance companies from 2007 to 2011 are employed to estimate the value added intellectual coefficient of Pulic (2004, 2008). Using return on assets and underwriting profit as indicators of profitability, the ordinary least squares panel corrected standard errors of Beck and Katz (2005) is used in estimating the relationship in the presence of serial correlation and heteroskedasticity. Leverage, underwriting risk and insurers’ size are used as control variables. Findings Non-life insurers have high IC performance comparative to life insurers. This study finds a significant positive relationship between IC and profitability of insurers in Ghana while human capital efficiency is the main driver of insurers’ IC performance. Practical implications The study discusses relevance of IC for management of insurance companies in Ghana and other emerging insurance markets in Africa. Originality/value This appears to be the first study to examine the impact of IC on profitability of a developing insurance market in Africa.