Intellectual capital performance of Islamic banks in Indonesia: Towards competitive advantages

Article history: Received: June 1, 2019 Received in revised format: June 23 2019 Accepted: July 4, 2019 Available online: July 5, 2019 The purpose of this research is to analyze the relationship between intellectual capital and financial performance of eleven Islamic banks in Indonesia over the period 2013-2016, using the valueadded intellectual capital model, utilizing panel data with seemingly unrelated regression analysis. The results of this research indicate that structural capital efficiency had a significant influence on return on assets, and asset growth. Thus, for Islamic banks in Indonesia, all non-human assets, including the standard operating procedures, storage of all data, structural procedures, governance and policies for decision-making had significant effects on return on assets, and asset growth. Islamic banks in Indonesia can achieve competitive advantages in terms of return on assets, and asset growth, because they have positive value added reflected in intellectual capital value consisting of human capital efficiency, structural capital efficiency and capital employee efficiency. © 2019 by the authors; licensee Growing Science, Canada


Introduction
Indonesia has been dealing with changes in the financial system since 1990, especially in facing the political demands of Islamic scholars and organizations. The first Islamic cooperative was founded in 1990, then in 1991, followed with village banks and Islamic banks in 1992 (Abdul-Majid et al., 2010). In 1998, both conventional banks and Islamic banks were given official recognition of the existence of a dual banking system by Bank Indonesia, as part of new bank activities (Thompson, 2008). Even though 26 Islamic banks have been established in Indonesia for 26 years and is supported by majority of the Muslim population, Islamic banks in Indonesia have not shown progress. The total assets of Islamic banks are only around 5% rather than to the total assets of the banking industry in Indonesia (Setyawati et al., 2015).
The low total assets in banks with Islamic principles in Indonesia might be caused by internal and external factors. Internal factors include limitations in channeling funds, limited bank products, and income contribution from non-operational activities (other than funding activities), while the lack of public understanding of Islamic banks might be the external factor. The Murabaha concept is the most popular term in Islamic microfinance institutions and is only understood by 26.85% of its customers. Customers who do not understand the concept of Mudaraba are 80.72%, and the same pattern also applies to the concept of Musharakah. While for Ijarah products, only a small number of customers understand the concept, indicating that the majority of customers do not recognize Islamic bank products (Masyita & Ahmed, 2011).
Considering such conditions, it is necessary for Islamic banks to achieve competitive advantages, because they have to compete with both fellow Islamic banks and conventional banks. This is important to fulfill the wishes, needs, and expectations of stakeholders and make the organization's performance improve continuously. To achieve sustainable improvement, it is necessary to increase effectiveness and efficiency to achieve the ability to design, create, manage and develop organizational processes (Pulic, 2016;Suroso et al., 2017).
During the industrial era, value creation was done through mass production of goods, which meant value added for an organization in the form of physical creation. Thus, financial capital played a decisive role. Value creation depends on quantity, hence a large number of employees involved in low-wage jobs, trying to produce as many items as possible. Supposedly, the value created does not depend on increasing goods and services, but the content of knowledge is included in goods and services (Rehman et al., 2012).
Value is not created by the quantity of goods and services, but through the quality contributed by employees, such as knowledge in designing, new software programs, or creating new medicine. People are the main carriers of knowledge. Employees are treated as investments, such as investments made in factories and machinery to create value during the industrial economy. Investing in employees means investing in the main drivers of the contemporary economy. Intangible assets, including intellectual capital are sources of economic value and corporate wealth, in addition to the products produced by companies (María Díez et al., 2010;Mondal & Ghosh, 2012). Intellectual capital is highly trusted in creating greater value for the company (Wang & Chang, 2005).
To achieve this state of business, it is only possible that the company increases its competitiveness continuously and upholds the knowledge assets of organizations that shape intellectual capital. Thus, measuring and managing intellectual capital is very important and needed in improving organizational performance and the process of creating dynamic value (María Díez et al., 2010;Pulic, 2016;Suroso et al., 2017). In a knowledge-based economy, the most strategic asset is intellectual capital. Intellectual capital is not explicitly listed on the balance sheet, but has a positive impact on its performance and success (Gan & Saleh, 2008;Hajeb et al. , 2015;Maditinos et al., 2011;Rehman et al., 2011). In the future, intellectual capital will be able to create value and improve company performance (Black & Khanna, 2007).
Various methods have been developed to measure intellectual capital, because it has an impact on value creation and improve financial performance. Indicators for measuring intellectual capital consist of human resource skills, completeness of data, standard operating procedures, organizational structure and firm value in financial markets (Lu et al., 2014;Maditinos et al., 2011).
The latest research analyzes the suitability of intellectual capital and company financial performance using value-added intellectual capital models (VAIC) (Joshi et al., 2013;La'lbar et al., 2012;Pulic, 2016;Čater & Čater, 2009). VAIC is easy to implement and is an effective model for measuring the performance of a company's intellectual capital and making comparisons between companies (Piluso, 2013;Rehman et al., 2011;Ulum et al., 2014).
The research objective is to analyze the relationship between intellectual capital and financial performance using the VAIC model of eleven Islamic banks in Indonesia during 2012-2014, using panel data regression. Whereas previous researches did not analyze the efficiency of human resources, structural capital, employee capital and added value, we aim to fill this gap and contribute to the literature in this study. Therefore, it can be said that this research is a preliminary study to explore the relationship between the efficiency of intellectual capital added value and financial performance by combining all Islamic banks in Indonesia.

Intellectual Capital
Intellectual capital is the skills and creativity of employees that can be improved by involving employees in various training programs, thereby increasing their abilities and competencies which ultimately increases organizational efficiency. Efficient employees will produce a more efficient organization, and in turn increase the efficiency of value added. All non-human assets, which consist of standard operating procedures, storage of all data, structural procedures, governance, policies, copyright, patents are used for decision making, which is the core of structural capital (Inkinen, 2015). One of the determinants of the profits obtained by the company is the capital invested in the business, with an indicator of the value of return on investment and is a measure of capital employed. Capital employed is the sum of current and fixed assets used in business and the sum of fixed assets to working capital or by reducing current liabilities from total assets. The company invests by using capital efficiently. Therefore, the efficiency of capital used is the main determinant of financial performance and the stock market (Lalbar et al., 2012).
VAIC™ is used as a measure to evaluate the efficiency of a company with the following formula: Goh (2005) used VAIC TM in his research and showed that almost all banks have relatively higher human resource efficiency than the structural and capital efficiency. Wei Kiong Ting and Hooi Lean (2009) examined the performance of intellectual capital and its relationship with financial performance in the financial services sector in Malaysia from 1999 to 2007. The results of this study showed a positive association between VAIC TM and return on assets (ROA). In addition, the three components of VAIC TM could explained ROA by 71.6 percent. Mavridis (2005) conducted a study for the effect of physical capital and human capital on VAIC TM in the banking sector in Greece. The results revealed that physical capital and human capital had a normal, strong, significant effect on ROA and the three components of VAICT M had positive correlations with ROA, but human capital had a relatively much higher influence, and concluded that intellectual capitalists or workers' knowledge very strongly contributes to the success of the company and especially to added value.
In his research, Puntillo (2009) conducted a research on Italian banks for the period 2005-2007, and the result was that the value of intellectual capital influenced business performance, using ROI and ROA as the independent variable. Intellectual capital in the study consisted of the value of human capital and structural capital efficiency.

Theoretical framework
Theoretical framework is described in Fig 1.

Hypotheses Development
Several studies have found an association between VAIC and financial performance models, indicating that the intellectual capital affects the rate of profit, production and allocation efficiency, and earnings per share (Ozkan et al., 2016;Rehman et al., 2011), and highlights positive relationships between intellectual capital and investor capital gains (Joshi et al., 2013).
Many studies exploring the relationship between financial ratios and intellectual capital show that there is a direct relationship between two variables (Joshi et al., 2013). Ho: There is no competitive advantage when Islamic banks are able to increase their performance through intellectual capital.
Ha: There is competitive advantage when Islamic banks are able to increase their performance through intellectual capital.

Data collection
Intellectual capital and financial performance data were taken from the publication from 2013 to 2016, using the monthly data of eleven Islamic banks in Indonesia. Data sources came from the website of Bank Indonesia and the Financial Services Authority.

Econometric Specification
The estimation in this study uses a panel data model ( Wooldridge, 2009 Dummy variable is added to the data of the Islamic banks that have competitive advantages and ones with no competitive advantages. Therefore, this study uses the dummy interception variable, as there are many values of the intercept term differ between the two categories (Gujarati & Porter, 2010). Data is processed with the 15 th version of Stata statistical program. The equations used are as follows: where Eqs. (1-3) represent multiple regression estimations. By using panel data estimation, it is determined to use a fixed effect rather than random effects approach so that ordinary least square (OLS), such as heteroscedasticity, autocorrelation and multicollinearity are implemented. The selection of panel data models uses the Hausman test. In addition, the number of individuals (N) is smaller than the amount of research time (T), thus being chosen to use a fixed effect (Gujarati & Porter, 2010). The specific criteria of each Islamic bank can be indicated by a fixed effect approach. Company's investment in the assets consisting of fixed assets and working capital +

Dummy variable
A dummy variable that takes a value of 0 for a bank that has a competitive advantage (seen from a positive VA score) and a dummy variable that takes a value of 1 for a bank that does not have a competitive advantage (seen from a negative VA score) Return of the resources (human and structural capital) used by the company NA Value added intellectual coefficient (VAIC TM ) The efficiency of corporate value creation, which consists of human capital efficiency, structural capital efficiency and capital employed efficiency NA

Selection of the Data Panel Estimation Model
The selection of panel data models uses fixed effects, the Hausman test. In addition, the amount of research time (T) is greater than the number of individuals (N), so the use of fix effect model is more appropriate (Gujarati & Porter, 2010). By using the panel fixed effect model, it will show the individual effects of each Islamic bank.

Multicollinearity Test
Multicollinearity test is determined by the correlation coefficient between independent variables. If the partial correlation value between the independent variables is greater than 0.8, it means that there is multicollinearity between the independent variables (Wooldridge, 2009). Table 2 shows the correlation coefficient between variables, where the partial value of the correlation between the independent variables is smaller than 0.8, meaning there is no multicollinearity.

Heteroscedasticity Test
Heteroscedasticity tests were performed using Bruesch-Pagan Lagrange Multiplier (BP-LM test) and Likelihood Ratio (LR test) test (Gujarati & Porter, 2010). If the p-value is less than 0.05, that means there is no element of heteroscedasticity in the model. Table 3 shows that the p-value is less than 0.05, which means that the structural variance model is not heteroscedastic.

Autocorrelation Test
For the autocorrelation test using Wooldridge Test, if the p-value is less than 0.05, there is no autocorrelation. Table 4 shows that the p-value less than 0.05, which indicates no autocorrelation.   (1) indicates that SCE has a positive and significant influence on ROA. The results of this study are consistent with research conducted by several researchers (Lipunga, 2015;Lu et al., 2014;Sharabati et al., 2010;Suroso et al., 2017). Similarly, in equation 2, SCE has a significant influence on AG. It means that all non-human assets, including non-human assets, which consist of standard operating procedures, storage of all data, structural procedures, governance, policies, copyright, patents are needed for decision making have a significant influence on ROA and AG. While in the third equation, VAIC TM significantly affects VA, where VAIC TM consists of components of HCE, SCE and CEE, which means that these three components will create significant value added for Islamic banks in Indonesia. In this study, Islamic banks that can create value added, will be able to gain a competitive advantage for the sustainability of their business. Table 3 and Table 4 show the eleventh Islamic banks that perform well (shown by ROA and AG) when they can create competitive advantages. Table 6 shows that only Bank BNI Syariah Indonesia has a negative ROA, because it has a negative VA, indicating that there are ten Islamic banks in Indonesia which have a competitive advantage. While looking at the number of AGs, all Islamic banks in Indonesia have a competitive advantage (Table 7). The rating of competitive advantage, judging from the achievement of ROA and AG, is presented in Table 8.

Estimation of research result
Considering the achievement of ROA, the most efficient Islamic banks to achieve competitive advantages (positive VA score) is Bank BCA Syariah (ROA = 2.74%) followed by Bank Victoria Syariah (ROA = 1.97%) and Bank Bukopin Syariah (ROA = 1.97%) = 1.67%) and Bank BNI Syariah (ROA =-0.017%) is the most inefficient. ROA = 2.74% indicates that every rupiah of assets owned by Bank BCA Syariah will generate a return of IDR 2.74, where in this study ROA is influenced by HCE, SCE, CEE, with positive VA score. By building up the resources they have, the services produced by Islamic banks will generate high profits, provided that Islamic banks have better resources than their competitors (conventional banks), making it impossible for competitors to replicate the same products at the same cost (Setyawati, 2017). While considering the achievement of AG, Islamic banks with the best growth for achieving a competitive advantage (positive VA score) are Bank Mega Syariah (AG = 8.46%) followed by Bank BNI Syariah (AG = 8.08%) and Bank Syariah Mandiri (AG = 6.31%). The bank with the lowest asset growth is Bank BCA Syariah (AG = 1.02%). AG = 8.46% shows that the assets of Bank Islamic banks increase by 8.86% per year, whereas in this study the AG is influenced by HCE, SCE, CEE, with positive VA score. Increased assets show that assets owned by Islamic banks are increasing, from both the source and the use of funds.

Conclusion and Recommendations
VAIC™ is an important method for measuring the performance of Islamic banks' intellectual capital. Based on the two research equations, SCE had a significant effect on ROA and AG. Thus, for banks with sharia principles in Indonesia, all non-human assets, including standard operating procedures, storage of all data, structural procedures, governance, policies, copyright, patents are important for decision making and they have significant influence on ROA and AG. Basically, Islamic banks in Indonesia can achieve competitive advantages in terms of ROA and AG. By using a dummy variable, we see a positive value added. The conclusion is reflected in Eq. (3), where VAIC TM consisting of HCE, SCE and CEE has a positive and significant influence on VA.   The main limitation of this study is the use of intellectual capital as a measurement model, which has been widely discussed in many previous studies. Another limitation of this study is the use of data, which is only a data of Islamic banks, while that of commercial banks are not used. Therefore, this study cannot determine the performance of each bank category. Therefore, future research can be done with different intellectual capital measurement models and various bank data. However, the results of this study can explain the importance of intellectual capital in increasing profitability and managing Islamic banks to achieve competitive advantages. Therefore, it can be said that developing performance on the basis of intellectual capital is very important, as important as physical investment. Especially for banks, it must be recognized as one of the important investments related to the use of reliable human resources, standard operating procedures, storage of all data, structural procedures, governance, policies, copyright, patents are needed for decision making, to encourage sustainable bank growth, along with other factors. Another implication of this research is that it helps the Indonesian banking industry, especially for Islamic banks and the regulators, also in overcoming factors affecting bank financial performance, and in taking actions to improve their value creation