Impact of intellectual capital efficiency on financial stability in banks: Insights from an emerging <scp>economy</scp>

Abstract

Abstract The paper aims to address the long‐term and short‐term effects of intellectual capital efficiency (ICE) on Pakistan's bank stability together with the banking system's inherent factors. The ICE is measured through the VAIC™ model and consists of human, rational, and structural capitals. The auto‐regressive distributed lag estimation technique results underwrite that an increase in ICE leads to better bank stability and endorses the resource‐based theory. Apart from that, findings show the long‐term role of ICE in bank stability, although statistics depict no short‐term role in this regard. The efficiency ratios, risk‐based capital, leverage, and bank size shows a positive impact in the short run. In the long run, the risk‐based capital and leverage show a decisively positive influence, while the bank size and efficiency ratio show a negative effect. Findings can be used to increase intangible investments to build a sustainable competitive advantage based on the resource‐based approach. The upcoming review is expected to consider the Fintech effect.