Human Capital, Innovation and Performance: Evidence from Commercial Banks in Kenya

Peter Nderitu Githaiga

Abstract


Purpose:  With unprecedented growth in financial innovations firm are gradually focusing on knowledge resources as a source of competitive advantage. At the heart of knowledge resources is human capital. This paper evaluated the impact of human capital on financial performance of commercial banks in Kenya.

Design/Methodology/Approach: A survey research design approach was adopted. The population of the study consists of 42 commercial banks licensed by Central Bank of Kenya. Only 31 banks qualified for analysis due to availability of data. Some of the banks had not commenced operations during the study period while others were under statutory management. Secondary data was extracted from annual financial reports. The study used descriptive and inferential statistics. Regression analysis technique with the aid of STATA (version 13) was used to measure the strength of the relationship between the variables as the basis of testing the hypothesis.  The study had two control variables comprising of firm size and firm age.

Findings: Evidence obtained from the analysis results indicated that human capital has a positive and significant effect on firm performance (R-squared, 0.3437; β = 0.291;  ρ-value 0.000<0.05) ; firm age had a negative and significant impact on financial performance (β = -0.459, ρ < .05) while firm  size had a  negative though insignificant effect on performance (β = -0.459, ρ > .05). Thus, the null hypotheses were rejected and the alternate accepted.

Research limitations: This study had two known limitations. The study focused on the Kenyan banking sector.  Therefore, future studies should focus on other sectors and in other economies. Second, the study used secondary data which limited measurement of variables.  Future researchers can consider using primary data which might shed more light on the relationship between the variables.

Practical implications: The research hypothesis is of strategic importance to managers and the regulator considering the critical role banks play in economic growth. Accordingly, the findings will aid management in strategic management and the regulators in formulating policies that create a robust banking sector.

Originality/Value: To the best this researcher’s knowledge, no study was conducted to examine the relationship between human capital and financial performance in the Kenyan banking sector. Moreover, previous studies pooled human capital with other elements of intellectual capital ignoring the indirect causal relationship between these elements.


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References


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