ABSTRACT
The study examined the effect of human resources accounting on the financial performance of Commercial Banks in Nigeria. To achieve the objectives of the study ex-post facto research design was adopted. The population of the study is made up of 15 commercial banks listed on Nigeria stock exchange. While the sample size is 10 commercial banks listed on Nigeria stock exchange. The data used was secondary data, extracted from annual reports and accounts of the selected commercial banks in Nigeria. Data were analyzed using panel data based regression analysis. The findings revealed that staff cost (proxy for human resource accounting) have a positive and significant effect on profit after tax and earnings per share but insignificant effect on return on asset and return on equity. The study concludes that though human resources accounting affects the financial performance but to a certain extent. Hence, there are other factors that could really determine the performance of banks outside human resource accounting. The study recommends that the performance of banks depend heavily on human resources accounting practices such as skills, attitudes, re-orientation and behaviour. Thus, the emphasis of the development of Human resource management practices and business strategies should be directed in improving the aforementioned Human Resources Management outcomes. The study also recommends that accounting standard board should incorporate their accounting standard for the valuation and disclosure of human resource accounting.
TABLE OF CONTENTS
Title Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Table of Contents vi
Abstract vii
CHAPTER 1: INTRODUCTION
1.1 Background to the Study 1
1.2
Statement of the Problem 5
1.3 Objectives
of the Study 6
1.4
Research Questions 6
1.5 Research
Hypotheses 7
1.6 Significance
of the Study 8
1.7 Scope
of the Study 8
1.8 Operational Definition of Terms 9
1.9 Limitations of the Study 10
CHAPTER 2:
REVIEW OF RELATED LITERATURE
2.1 Conceptual
Framework 11
2.1.1 Identification
of human resources 12
2.1.2 Components of
human resource accounting 13
2.1.2.1 Staff costs 13
2.1.2.2 Directors
remuneration 14
2.1.2.3 Staff
Strength 14
2.1.3 Accounting for human resources 15
2.1.4
Studies on human resource valuation and reporting 19
2.1.5 Evidence of human resource accounting
application 23
2.1.6 Human resource (HR) policies in
Nigeria 27
2.1.7 Issues in human resource
accounting measurement models 34
2.1.8 Concept of corporate performance 33
2.1.9. Human resource accounting and organizational performance
40
2.1.10
Human asset accounting and corporate profitability 41
2.1.11 Human resource accounting reporting challenges 43
2.2 Theoretical Framework 43
2.2.1 Human capital theory 43
2.2.3 Resource-based
theory 43
2.3 Empirical Review 45
2.4. Summary of Literature Review 63
2.5 Gap in Literature 71
CHAPTER 3: METHODOLOGY
3.1.
Research Design 72
3.2 Area of the Study 72
3.3
Source of Data 72
3.4
Population of the Study 72
3.5
Sample Size/Sampling Techniques of the Study 72
3.6
Data Analysis Techniques 73
3.7
Model Specification 73
CHAPTER 4:
DATA PRESENTATION, ANALYSIS AND
DISCUSSION ON FINDINGS
4.1 Data Presentation 75
4.2 Data Analysis 75
4.2.1 Stationary/unit root test 75
4.3 Test of
Hypotheses 78
4.3.1 Hausman
test for hypothesis one 78
4.3.2 Panel
Data Test 79
4.4 Hausman test for hypothesis two 80
4.4.1 Panel data test 81
4.5 Hausman Test for Hypothesis three 82
4.5.1 Panel data test
83
4.6 Hausman Test for Hypothesis Four 84
4.6.1 Panel data test 85
4.7 Discussions on
Findings 86
CHAPTER 5: SUMMARY,
CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings 88
5.2 Conclusion 88
5.3 Recommendations 89
5.4 Contribution
to Knowledge 90
5.5 Areas
of Further Research 90
References 91
Appendices 98
LIST OF
TABLES
2.1: Summary
of literature review 63
4.1. Augmented
Dickey Fuller (ADF) test 75
4.2: Descriptive statistics of the variables 76
4.3: Hausman test for hypothesis one 78
4.4:
Panel Data
Test 79
4.5:
Hausman test
for hypothesis two 80
4.6:
Panel data
test 81
4.7:
Hausman test
for hypothesis three 82
4.8: Panel data test
83
4.9: Hausman test for hypothesis four 84
4.10: Panel data test 85
CHAPTER 1
INTRODUCTION
1.1
BACKGROUND
TO THE STUDY
One of the key
contributory factors to an organizational performance is the human resources of
an organization. Human Resource Accounting (HRA) has been the focus of much
academic research since the late 1960’s which may be attributed to the apparent
increasing recognition of the importance which major stakeholders attach to
socially and environmentally responsible corporate behaviour within the
business community (Enofe, Mgbame & Ovie, 2013). Human resource refers to a
set of individuals who make up the workforce of an organization or a business
entity. Human resources accounting, also known as Human Asset Accounting, is an
information system involved in identifying, measuring, capturing, tracking and
analyzing the potential of the human mix of a company and communicating the
resultant information to the stakeholders of the company. It is a method by
which a cost is assigned to every employee when recruited, and the value that
the employee would generate in the future.
Human
resources play a significant role of coordinating all organizations’
activities, towards the achievement of the corporate goals and objectives. With
machines, materials and money little or nothing could be achieved without human
contributions (Olaniyan & Lucas, 2008). This confirms the extent of
importance of human resources in organizations.
The importance of human resources to the success of organizations is
also confirmed in (Akintoye and Adidu, 2016).
They stated that human resource is a key factor in the determination of
measurable growth of any nation.
Oke (2015),
highlighting the importance of human resource accounting and he stated that a
successful and effective organizations understood that their success is
directly related to the quality of their human capital. Thus, there is an
indication that the importance of human intellectual capability is
indispensable in the assessment of corporate performance. The development of
human resource accounting originated from the growing needs of the importance
of human assets in the management of organization (Chaturivedi, 2013).
The
application of HRA varies across organizations and countries (Boedker,
Mouritsen & Guthrie, 2008). Some organizations adopt a valuation method
suitable for the measurement of their human resources and report such
information as additional information or provide supplementary statements in
the annual reports. Human resource accounting and reporting by corporate organizations is still at the
infant stage in Nigeria where some of the companies that have invested heavily
in human resources and have applied human resources accounting in one way or
the other in Nigeria include both banking sector, manufacturing sector, oil and
gas sector amongst others. The investments by these companies in human capital
development are normally not reflected in their statement of financial position
as assets but expensed in the income statements (Okapla & Chidi, 2010;
Micah, Ofurun & Ihendinihu, 2012).
There are
special attributes of human resource accounting, which in turn make their
valuation so peculiar: uncertainty of the service period because of the free
mobility of employees whenever they so desire, uncertainty of the contribution
level of recruits because an employee’s contribution level is too difficult to
be estimated and forecasted with much reliability since his/her productivity
fluctuates and depends on many other factors, and finally, in valuing human
resources, the payments in terms of salaries and/or wages count a lot. An
employee that is valued in terms of the future salaries and wages determined
today would have his value affected whenever the government changes policy
affecting his reward system or whenever there is an action from the workers
union regarding the reward system.
In the current
business environment, human capital is regarded as a key source of competitive
advantage. With the knowledge agenda,
companies view their employees as an important resource and invest heavily in
them. Nevertheless, information on human
capital and its development is important to financial analysts and fund
managers, who need to assess the future direction, potential and values of
companies. Sharma (2012) suggest that it is the stock of human capital that
predominantly determines the earnings of individuals. Hence, assessing corporate
performance may not be conclusive without the consideration of the value of
human asset.
The difference
between Human Capital Management (HCM) and Human Resource Management (HRM) is
that the former treats people as assets while the latter treats people as costs
(Roger & Wright, 2014).
Performance is
the achievement of a target at the work place. According to Chenhall (2005),
firm performance can be measured either by financial or non-financial or both.
Horngren (2008) classified financial performance into two categories, (1)
absolute measure and (2) the relative measure. The absolute performance measure
is used to assess performance based on the quantum of profit. While the
relative performance measure is use for inter firm comparison.
Thus, a company that is performing well is one that is
successfully achieving its goals and is efficiently executing suitable
strategies (Nsijilem, 2015). The corporate performance of an entity can be
measured in terms its profitability, leverage, solvency etc. the performance of
an entity can be measured through the use of ratio and trend analysis. However,
this study focuses on some selected indicator of financial performance in terms
of NPM, ROA, EPS and ROE.
Financial Statement Information are organized in a manner
that enable its stakeholders draw logical conclusions in relation to the
financial performance and well being of
the reporting organization (Frank and Sangster, 2008). They also noted that
ratio analysis is the initial step in assessing the financial performance and
position of a given entity. The profitability of any given entity is of
paramount interest of almost all categories of stakeholders which is calculated
in relation to sales or assets and equity investment as noted by Ezirim and
Nwakama (2004). A companies’ profitability measure specify if the entity is
performing satisfactorily or not. Management performance can be determined by
profitability indicators along with other measures. This therefore determines
the viability of the company.
The importance
of human resource to any organization cannot be over emphasized. But the human
resources accounting is ridden with many controversy. It has two equal sides
one for and the other against. For the school of thought against, they hold
that human resource does not meet the requirement for it to qualify as assets,
which is derived from the definition that assets are resources owned or
controlled by an entity as a result of past events from which future benefits
will accrue to the entity (Mayo, 2004). In Nigeria, some quoted companies have
invested heavily in human resources. Their statement of financial position
reveal that investments by these companies in human capital development are
normally not shown but are carried to expense side in the income statement.
However, (Okpala & Chidi, 2010) stated that the heavy amounts incurred on
recruitment, selection, placement, training and development of personnel were
generally treated as revenue expenditures and debited to income statement. In
the light of the above, many are wondering whether capital markets obsession
with profitability as almost the sole indicator of corporate performance
provides corporate decision markers with an incomplete set of management tools.
As observed by (Kirfi & Abdullahi, 2012) human resources accounting
practice in Nigerian is more of a mirage than reality, since this issue is been
skipped in financial statements. They argue that existing accounting practices
lack regard to recognition of human resources as an asset and have
significantly discouraged the use of any or a combination of measurement
technique(s) in quantifying human resource let alone its reporting. Against
this backdrop this study seeks to empirically evaluate the effect of human
resources accounting on the performance of commercial banks in Nigeria.
1.2 STATEMENT OF THE PROBLEM
The problem of
most organizations today is the ability to ascertain the effect of human
resource accounting on performance. Companies today do not keep accurate record
of the activities relating to human resource accounting such as recruiting
cost, training cost, salaries and wages among others. Without keeping accurate
records of these activities, it will be difficult for banks or other business
organizations to effectively and accurately determine their performance. Inability of banks to keep accurate account
of their human asset have affected their performance negatively.
Another
disincentive to the acceptance of HRA is the lack of universal approach to its
reporting thereby defining the standards that would allow for valuable and
meaningful comparisons. Because there is a current absence of universal
definition, firms that are proactive enough to measure, do it ‘their way’
(Gates, 2012). From a broader perspective, Jasrotia, (2004) looked at the
trends in the field of HRA and came up with some factors that deter the
progress in the area and the application of the concept. Common among them are
low level of awareness and acceptance of HRA, absence of an industry standard,
extensiveness of the research involved, dynamism of some industries like the
information technology which are very dynamic due to frequent discoveries and
technological advancement.
So far it is
unclear whether human resource accounting affect corporate performance. The
result of most researches conducted on human resource accounting and financial
performance are either inconclusive or contradictory, reporting positive or
sometimes negative results. For example the study carried out by Parameswaran
(2017) in China showed that human resource accounting has a significant effect
on firms’ performance. Also, the study carried out by Afiouni (2017) in Nigeria
showed that human resource accounting has a positive effect of firms’ financial
performance. But, the study carried out by Herman and Mitchell (2017), revealed
that human resource accounting has no significant effect on organizational
performance. Due to inconsistent result it is necessary to re-evaluate other
important variables that could determine company performance as well as
consider longer time frame since past research covered only five years. In the
light of these limitations this study is therefore set to evaluate the effect
of human resource accounting on the performance of commercial banks in Nigeria.
1.3 OBJECTIVES OF THE
STUDY
The main objective of the study is to evaluate the effect of
human resource accounting on the financial performance of Commercial Banks in
Nigeria.
The specific objectives are to:
1) Determine
the effect of staff cost on profit after tax of Commercial Banks in Nigeria.
2) Examine
the effect of staff cost on the return on asset of Commercial Banks in Nigeria.
3) Determine
the effect of staff cost on the return on equity of Commercial Banks in Nigeria
4) Examine
the effect of staff cost on earnings per share of Commercial Banks in Nigeria
1.4 RESEARCH QUESTIONS
The research questions for the study are as follows:
1) What
is the effect of staff cost on profit after tax of Commercial Banks in Nigeria?
2) What
is the effect of staff cost on the return on asset of Commercial Banks in
Nigeria?
3) What
is the effect of staff cost on the return on equity of Commercial Banks in
Nigeria?
4) What
is the effect of staff cost on earnings per share of Commercial Banks in Nigeria?
1.5 RESEARCH HYPOTHESES
The following research hypotheses were stated in null form to
guide the attainment of the study’s objectives:
H01: Staff cost has no significant effect
on profit after tax of Commercial Banks in Nigeria.
H02: Staff cost has no significant effect
on return on asset of Commercial Banks in Nigeria.
H03: Staff cost has no significant effect
on return on equity of Commercial Banks in Nigeria.
H04: Staff cost has no significant effect
on earnings per share of Commercial Banks in Nigeria.
1.6
SIGNIFICANCE
OF THE STUDY
The study will
benefit the following group of bodies;
Accountants; The findings of this
study will enlighten accountants on the need to account for human resource
activities and report same in the financial statement for effective
determination of performance. The study will also enlighten accountants on the
circumstances of not recording human capital in the financial statements.
Banks; commercial banks will
benefit in this research work, the findings of this study will enable them to
know the importance of human asset in an organization and as such pay more
attention on the application of human resource accounting. The findings of this
study will help commercial banks to know how employees’ salaries and wages,
employees’ strength and directors remuneration affects the financial
performance of banks in Nigeria. It will therefore help them to ascertain if
employees are doing well or not.
Students/researchers;
this
research will equally serve as a reference to students in this institution and
other school who may be interested to embark on a further research study of
this nature and above all, report of this study shall definitely add to
existing knowledge in research methodology.
1.7
SCOPE OF THE STUDY
The content scope is the
effect of human resource accounting on the financial performance of Commercial
Banks in Nigeria for the period of five years ranging from 2014 to 2018. The
reason for the period (2014 -2018) is because of the recent commercial bank
failures which could be as a result of poor audit quality. The geographical
scope is Nigeria. The unit scope is selected banks. Non-probability method was
adopted to determine the sample size. This research adopted judgmental sampling
technique based on the availability and up-to-date annual financial statements
as well as stability in stock exchange market.
In view of this this, ten (10) commercial banks listed on the floor of
Nigeria Stock Exchange was selected amongst the commercial banks listed in
Nigeria Stock Exchange. The selected banks includes; First bank Plc, Access
bank Plc, Union bank Plc, United bank for Africa, First City Monument bank,
Guarantee Trust, Stanbic IBTC bank, Sterling bank, Eco bank, and Zenith bank.
1.8 OPERATIONAL DEFINITION OF TERMS
Human capital: this is a measure of the economic value of an employee's skill set. This
measure builds on the basic production input of labor measure where all labor
is thought to be equal.
Human resource accounting:
this is
the process of identifying and reporting investments made in the human resources of an organization that are
presently unaccounted for in the conventional accounting practices. It is an extension of
standard accounting principles. Measuring the value of human resources can
assist organizations in accurately documenting their assets.
Net profit margin: This is the percentage of revenue left after all expenses have been
deducted from sales. The measurement reveals the amount of profit that a
business can extract from its total sales. The net sales
part of the equation is gross sales
minus all sales deductions, such as sales
allowances. The formula is: (Net profits ÷ Net sales) x 100 = Net
profit margin
Performance: Performance is completion of a task
with application of knowledge, skills and abilities. In work place, performance
or job performance means good ranking with the hypothesized conception of
requirements of a task role, whereas citizenship performance means a set of
individual activity/contribution that supports the organizational culture.
Return on asset: Return on Assets (ROA) is an
indicator of how profitable a company is relative to its total assets. ROA
gives an idea as to how efficient management is at using its assets to generate
earnings. Calculated by dividing a company's annual earnings by its total
assets, ROA is displayed as a percentage.
Return on equity: Return on equity (ROE) is the amount
of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing
how much profit a company generates with the money shareholders have invested.
1.8 OPERATIONAL DEFINITION OF TERMS
Human capital: this is a measure of the economic value of an employee's skill set. This
measure builds on the basic production input of labor measure where all labor
is thought to be equal.
Human
resource accounting: this is the process of identifying and reporting investments made in the human resources of an organization that are
presently unaccounted for in the conventional accounting practices. It is an extension of
standard accounting principles. Measuring the value of human resources can
assist organizations in accurately documenting their assets.
Net profit margin: This is the percentage of revenue left after all expenses have been
deducted from sales. The measurement reveals the amount of profit that a
business can extract from its total sales. The net sales
part of the equation is gross sales
minus all sales deductions, such as sales
allowances. The formula is: (Net profits ÷ Net sales) x 100 = Net
profit margin
Performance: Performance is completion of a task
with application of knowledge, skills and abilities. In work place, performance
or job performance means good ranking with the hypothesized conception of
requirements of a task role, whereas citizenship performance means a set of
individual activity/contribution that supports the organizational culture.
Return on asset: Return on Assets (ROA) is an
indicator of how profitable a company is relative to its total assets. ROA
gives an idea as to how efficient management is at using its assets to generate
earnings. Calculated by dividing a company's annual earnings by its total
assets, ROA is displayed as a percentage.
Return on equity: Return on equity (ROE) is the amount
of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing
how much profit a company generates with the money shareholders have invested.
1.8 LIMITATIONS OF THE STUDY
Although this study is scientifically
carried out, there are potential limitations of the study that should be taken
into consideration. The current research is restricted only to the listed commercial
banks. Furthermore, this research is conducted based on secondary data
collection. The other data collection method such as survey is not considered.
As a result the data collected is not 100% accurate as it only captured
quantifiable data neglecting the expression and views of firm managers on how
they report and account for human resource. In addition to these, data
representing the period of 2014 to 2018 is used for the study. Thus, current
issues and causation cannot be inferred.
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