ABSTRACT
This work examined the effect of Intellectual capital costs on earnings generation of listed deposit money banks in Nigeria. The study adopted the ex-post facto research design and panel regression statistical technique, involving the use of time series and cross-sectional data. Data covered the period of eight-years (2011-2018); considering the total population of fourteen (14) listed deposit money banks in Nigeria, random sampling was employed in selecting firms for this study involving eleven (11) deposit money banks. Data were sourced secondarily from the firms' published annual financial statements. Value Added Intellectual Coefficient (VAIC) theory as developed by Pulic (1998) was adopted for this study. It was discovered from the findings that Human Capital Efficiency (HCE), Structural Capital Efficiency (SCE) and Capital Employed Efficiency (CEE), as components of Intellectual capital costs all have a positive and significant effect on gross earnings. Therefore, Intellectual Capital Costs have a positive and significant effect on earnings generation of listed deposit money banks in Nigeria. In view of our findings, deposit money banks should ensure that an advanced and all-encompassing training and retraining programme is put in place to certify an up to date human resource, which is both efficient and effective. In addition, managing directors of deposit money banks should carry out a proper implementation and regular monitoring of the systems, procedures and program (structural capital), all with an effective and efficient support from higher and middle line management, as this will ensure expansion in all frontiers of the business.
TABLE OF CONTENTS
Title Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Table of Contents vi
List of Tables ix
List of Figures x
Abstract xi
CHAPTER 1:
INTRODUCTION
1.1
Background to the Study 1
1.2
Statement of the Problem 3
1.3
Objectives of the Study 4
1.4
Research Questions 5
1.5
Statement of Hypotheses 5
1.6 Significance of the Study 5
1.7 Scope of the Study 6
1.8 Operational Definition of Terms 6
1.9 Limitations of the Study 7
CHAPTER 2: REVIEW OF RELATED LITERATURE
2.1 Conceptual Framework 8
2.1.1 Concept of intellectual
capital 8
2.1.2 Categories of intellectual
capital 8
2.1.3 Characteristics of
intellectual capital 12
2.1.4 Value added intellectual
coefficient (VAIC) 12
2.1.5 Capital employed efficiency
(CEE) 13
2.1.6 Human capital efficiency
(HCE) 14
2.1.7 Structural capital
efficiency (SCE) 14
2.1.8 Phases of intellectual capital
development 15
2.1.9 Intellectual capital costs 16
2.1.10 Intellectual capital
development steps 18
2.1.11 Measuring intellectual
capital 19
2.1.12 Intellectual capital costs
model (views) 20
2.1.13 Importance of intellectual
capital costs 31
2.1.14 Intellectual capital
administration measures 32
2.1.15 Intellectual capital costs
and earnings generation 38
2.2 Theoretical
Framework 38
2.2.1 Value added intellectual coefficient
theorem (VAICTM) 38
2.2.2 Knowledge based theory
(view) 42
2.2.3 Agency theory 41
2.3 Empirical Review 43
2.4 Summary/Gap in Literature 65
CHAPTER 3: METHODOLOGY
3.1 Research Design 67
3.2 Area of the Study 67
3.3 Population of the Study 67
3.4 Sampling Size 67
3.5 Method of Data Collection 68
3.6 Method of Data Analysis 68
3.7 Model Specification 68
CHAPTER 4: RESULTS AND DISCUSSIONS
4.1 Descriptive Statistics 70
4.2 Unit Root Test 71
4.2.1 Panel unit root test for dependent &
independent variables 71
4.3 Co-integration Test 73
4.3.1 Co-integration test for the series LOGE and
HCE 73
4.3.2 Co-integration test for the series LOGE and
SCE 74
4.3.3 Co-integration test for the series LOGE and
CEE 75
4.4 Test of Constant Variance
(Heteroskedasticity) 75
4.4.1 Test of constant variance for model 1 76
4.4.2 Test of constant variance for model 2 76
4.4.3 Test of constant variance for model 3 76
4.5
Test of Hypotheses 77
4.6
Discussion of Findings 83
CHAPTER 5: SUMMARY OF FINDINGS,
CONCLUSION AND RECOMMENDATIONS
5.1
Summary of Findings 85
5.2
Conclusion 85
5.3
Recommendations 85
5.4
Suggestion for Further Studies 86
References
Appendices
LIST
OF TABLES
4.1 Description Statistics of Dependent &
Independent Variables 70
4.2.1 Result of Panel Unit Root Tests for
Dependent Variables 72
4.3.1 Co-integration Test-Engle-Granger 73
4.3.2 Co-integration Test-Engle-Granger 74
4.3.3 Co-integration Test-Engle-Granger 75
4.4.1 Model 1 Heteroskedasticity Test: White 76
4.4.2 Model 2 Heteroskedasticity Test: White 76
4.4.3 Model 3 Heteroskedasticity Test: White 76
4.5.1.1 Correlated Random Effects-Hausman Test 77
4.5.1.2 Estimates of Random Effect (Model 1) 78
4.5.2.1 Correlated Random Effects-Hausman Test 79
4.5.2.2 Estimates of Random Effect (Model 2) 80
4.5.3.1 Correlated Random Effects-Hausman Test 81
4.5.3.2 Estimates of Random Effect (Model 3) 82
LIST
OF FIGURES
2.1 Categorisation of Intellectual Capital 15
2.2 Managing of Intellectual Capital 18
2.3 Diagrammatical Representation of
Wissensbilanz Model 22
2.4 Description of the Meritum Model 28
2.5 Skandia’s Navigator (Customer focus) 30
2.6 Pictorial Description of the New Approach
Model 32
3.1 Explanation of Variables 69
CHAPTER
1
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
The study of intellectual capital costs, in recent
years, is an area that is now securing relevance in today’s academia, knowledge
economy and business. This plays a central function in the innovation, productivity,
growth, performance and competitiveness of organisations. The scope of intellectual
capital comprises human resources, the company’s composition and processes,
research and development, rights related to intellectual property and
technology, as well as software and consumer networks (Zehri, Abdelbaki & Bouabdellah,
2012).
Remarkably, it is no
longer a debate that, in recent times, the accounting world has witnessed the
gradual move from industry-based concentration to high concentration on
technology that enhances the creativity, skills and expertise of people to
drive firms forward.
Inyada (2018), in
order to buttress the aforementioned assertion, added that such a move from
being industry-based, focuses on assets that are physical in nature, such as
plants, factories, equipment and machinery, to the level of deploying
cutting-edge technology and leveraging novel information. Moreover, that which
is innovation-based focuses on talent, expertise, skill-set, creativity, experience
and dedication of people in an establishment’s human capital. By implication,
the fundamental difference between the two environments is the nature of their
assets.
Previous
researches in line with this study have proved that the advancement to ability,
knowledge, expertise, skills, attitude of workers and experience (which
intellectual capital is comprised of) is no doubt of greater value to an
organisation. In addition to facing enormous globalised competition, there is
an extensive recognition that intellectual capital is a crucial force that
positions economic growth (Huang & Liu, as cited in Sharabati, Jawad, &
Bontis, 2010). Furthermore, in today’s knowledge-based economy, common
researchers have also claimed that systems, people and procedures have remained
indispensable assets for organisational advancement. The predominance of
intangibles and knowledgeable individuals has propelled the world to face a
global competition, which appears as an outstanding characteristic of every
emerging economy of today.
That being said,
the origin of intellectual capital costs is traced to Scandinavia, where,
traditionally, businesses have a greater time horizon, and where there is a
formidable inclination “engineering” to innovation and research (Barney, as
cited in Gogan & Duran, 2014). This type of cost management is used mainly
in Denmark, Holland, Taiwan, Sweden, Norway, China, Canada, Finland, Japan,
Taiwan and, to a lesser extent, in Austria, Israel, Italy, Spain, and
Australia. Organisations use performance management of intellectual capital in
one way or another by realising or guessing its role in achieving competitive
advantage. In summary, the management of intellectual capital costs is a set of
management tools which enables the organisation to enjoy access to the
knowledge they have, but they do not operate effectively.
Next to this,
earnings are very important concepts that relate to the form and way in which
financial resources that are readily available to an organisation are properly
utilised to give rise to the overall corporate objective of an organisation. It
is, therefore, crucial that the performance of an organisation is measured on a
regular basis to guarantee continuity and sustainability.
One
particular sector considered to be knowledge-intensive and a source of rich
intellectual capital concentration is the banking and financial sector.
Compellingly, this sector is highly innovative, research-intensive and strongly
balanced in its use of the human capital intervention. Hence, the need to
manage intellectual asset is very important for every organisation within the
banking sector that desires to generate and improve its earnings steadily,
which, in turn, will make it stand out amongst its competitors.
1.2 STATEMENT
OF THE PROBLEM
There have been conflicting results in this
research area especially in Nigeria. While some researchers agree that
intellectual capital costs relate positively and significantly to
organisational performance and, as such, also provide competitive edge over
others, some other researchers believe that the relationship between
intellectual capital costs and organisational performance is negative and of no
significance; and that the physical assets still stand as the central force of
organisational performance (Inyada, 2018).
As captured in the
annual reports, one of the common phrases in the chairman’s statement, is that,
“Our employees are our greatest assets”.
Citing Nigeria as a case study, though these institutions in the
financial sector often boast of rich intellectual assets, there has always been
lopsided awareness given to the contribution and value of these “treasured assets”
on the overall earnings of banks. These are clearly seen in recent times, from
the high level drastic “human asset (staff) fallout” due to poor working
conditions, job transfer or switch by bank staff owing to poor remuneration, little
or no budget for staff training for all cadre, tight work schedule &
conditions, high influx employment ratio of casual staff amongst others with no
conversion policy even after meeting the satisfactory working condition before
conversion to full staff amongst other issues. One of the reason behind all
these bottle neck is due to improper accountability, redefining and mis-management
of these unique human asset, coupled with the rising global economic crisis.
Also, with the latest financial re-engineering and technological improvement of
most financial institutions in Nigeria, there have been high exposure and
reports of financial crime (e-fraud) arising from security breach. In the wake
of this reality, whenever organisations take up the task of investing completely
in physical assets, they often try to select the investment that will give rise
to the highest return on their outlay. In addition to the above-mentioned
bottlenecks, been faced with the challenge of having the most suitable
intellectual capital to carry on its work efficiently and effectively, some
deposit money banks results in poaching from competitors, since it will take time
to actualise the process of new staff recruitment and training to meet their
human capital needs. Little wonder Guest, Michie, Conway, and Sheehan (as cited
in Oko, Onodi, and Tapang, 2018) noted that it had been a spontaneous argument
that organisations which are best able to meet the difficulty of handling their
intellectual capital cost will be those which can utilise its valuable, scarce
and inimitable resources that have been acquired.
In addition to the
task of effectively and prudently managing intellectual capital costs, the management
of financial institutions are confronted with the challenge of how to enjoy a
competitive edge in the world markets, while in search of improved productivity
via encouraging the spread of high-performance in workplaces. Owing to this
development and challenge, this research is set out to look at the effects of
intellectual capital costs on the generation of earnings of deposit money banks
in Nigeria.
1.3 OBJECTIVES OF THE
STUDY
The broad objective of the study is to examine the effect of
intellectual capital costs on earnings generation of listed deposit money banks
in Nigeria.
The Specific objectives
are:
1.
To ascertain the effect of human capital efficiency on gross earnings.
2.
To examine the effect of structural capital efficiency on gross
earnings.
3.
To determine the effect of capital
employed efficiency on gross earnings.
1.4 RESEARCH
QUESTIONS
(i)
To what extent
does human capital efficiency affects gross earnings?
(ii) To what extent does structural capital efficiency
affects gross earnings?
(iii)
To what extent
does capital employed efficiency affects gross earnings?
1.5 STATEMENT OF HYPOTHESES
The following are the null hypotheses of the study:
1.
Human capital efficiency has no
significant effect on gross earnings.
2.
Structural capital efficiency has
no significant effect on gross earnings.
3.
Capital employed efficiency has no
significant effect on gross earnings.
1.6 SIGNIFICANCE OF THE STUDY
Considering
that the subject of the study is of utmost importance in the accounting and
finance world, it will be beneficial to the following stakeholders:
To Banks:
This study will be absolutely crucial, in order to have a comprehensive
knowledge of the nature of their intellectual capital costs and their
contribution to their baseline.
To Shareholders:
They will best understand the modalities on how to determine which bank to
invest in, when considering their returns on intellectual capital, and having a
thorough grasp of why organisations engage in the services they carry out.
Management:
They will have to appreciate the need for giving a high priority to the incorporation
of intellectual capital in their financial statements, and as well consider the
significance of intellectual capital costs on a firm, as a going concern.
Researchers:
Undoubtedly, they will find the research really essential, as it will add to
existing literature and also aid more research in the future.
1.7 SCOPE
OF THE STUDY
This
study is on the effect of Intellectual Capital costs on earnings generation of
listed deposit money banks in Nigeria. The data used for the study were derived
from the published financial statement of eleven (11) commercial banks listed
on the Nigerian Stock Exchange. The period ranging from 2011 – 2018 covers the
aspect of dealing with the data for statistical analysis, as there has been
little or no research covered on this area within these period.
1.8 OPERATIONAL
DEFINITION OF TERMS
The
following definitions relevant for the study shall be adopted:
Capital
employed efficiency: This measures the relational capital
value added to the entity, which captures the entire value contribution to the
stakeholders.
Earnings:
This is the income accrued and derived by an organisation from the activities
it carries out within a period.
Human
Capital: This is the know-how, skill, and expertise held in
the heads (initiative) of the staff or their valuable knowledge asset that
creates wealth for the organisation.
Human
capital efficiency: This is the proportion of the value-added
to the human capital of an organisation.
Intellectual
Capital: This is the expertise inherent in the staff, system,
and procedures of a workplace and the inter-related relationship with customers
been combined to provide a positive value drive of an organisation.
Intellectual
Capital Costs: This involves the functional costs of the
expertise, software and hardware, and the dynamic relationship that drives the
entire worth of the organisation.
Relational
Capital: This involves the value creating stakeholder
relationship of the organisation.
Structural
capital: This is the software and hardware, system, processes
and procedures component of an entity that creates wealth for the organisation.
Structural
capital efficiency: This is the proportion of the structural
capital to the value- added in an organisation.
1.9 LIMITATIONS
OF THE STUDY
There are many
impediments against the conduct of research in Nigeria just as in any
developing country. The study limitations are as follows:
1.
Non-availability of required up to
date data during this study to widen the scope. Thus, the researcher is
necessitated to use the data available at hand to carry out this research work.
2.
The firms selected for the study
comprises only listed deposit money banks.
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