Intellectual Capital Performance and Government Ownership: An Analysis of Indonesian Banks

There have been numerous articles investigating the relationship between ownership and performance. Specifically, Saleh et al (2009) investigate the effect of various types of ownerships (government, management, and foreign) on intellectual capital performance of Malaysian firms. Our article attempts to analyze the effect of specific type of ownership - government ownership - on intellectual capital performance of Indonesian banks. We choose banking firms since they are intellectually intensive firms (Firer and Williams, 2003). Indonesian banking firms offer unique research context since government ownership can be classified into central and provincial government ownership. We conjecture that government ownership hurts firms' intellectual capital performance. Further, provincial government ownership has more negative effect on intellectual capital performance than central government ownership effect. These conjectures are based on Shleifer and Vishny (1994) and Sapienza (2004) assertion that state-owned enterprises have higher exposure of political intervention that potentially hurt state-owned enterprises performance and popular allegation that Indonesian state-owned banks are ineffective in utilizing their assets (Basri, 2009). Besides, Qian et al (2009) argue that firms owned by non -central government (province, city, county) suffer higher political intervention than firms owned by central government (at least in Chinese context). In Indonesian context, banks owned by provincial government are often alleged to serve political power of provincial government. Such banks suffer higher exposure of political intervention than banks owned by central government (Asbanda, 2009). Due to the number and ownership structure of Indonesian banks change each year, we have to conduct cross sectional analysis. We analyze the Indonesian banking industry of year 2008 since it is the latest available year (during the research completion). We use Value Added Intellectual Coefficient (VAIC (TM)) developed by Pulic (1998) to measure firms' intellectual capital performance. Government ownership is defined as direct and indirect ownership. We cannot reject the null relations between government ownership (including provincial government one) and IC performance. In other words, we cannot empirically support our conjecture that government ownership (especially provincial one) hurt IC performance. On the other hand, the percentage of fee-based income to total operating income has significantly positive effect on IC performance. We speculate that 2008 global financial crisis neutralize the hypothesized negative relation between government ownership and IC performance.