ABSTRACT
This study examines causal link between human resource accounting and financial performance of listed firms in Nigeria. The study employs ex post facto research design. Data on acquisition cost, director’s remuneration, profit after tax, return on asset and return on equity were obtained from the published financial reports of 15 firms in Nigeria covering a period of 5 years (2014 to 2018). Acquisition cost (AC) and director’s remuneration (DR) represents the independent variables while profit after tax (PAT), return on asset (ROA) and return on equity (ROE) represents the dependent variables. Secondary method of data collection was used to collect the data from the annual reports of the listed firms. The multiple linear regression technique was used to analyze the data generated. Findings from the study reveal that human resource accounting have significant effect on profit after tax but are not significant on return on assets and return on equity. The study conclude that human resource costs in firms positively contribute to increase in profit after tax but not in return on assets and return on equity and recommend the employment of highly qualified workforce should be the bedrock of recruitment exercise among firms and proper training and re-training of staff should be carried out frequently to continually enhance the working capacity of staff and profitability of the organization.
TABLE OF CONTENTS
Title
Page i
Declaration ii
Certification iii
Dedication
iv
Acknowledgements v
Table
of Contents vi
Abstract
x
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
Research Hypotheses 5
1.6
Significance of the Study 5
1.7 Scope
of the Study 6
1.8 Definition of Terms 7
CHAPTER 2: REVIEW OF RELATED LITERATURE
2.1
Conceptual Framework 8
2.1.1 Human resource accounting 8
2.1.2 Human resource cost 11
2.1.3 Evolution of human resource accounting 14
2.1.4 Classification/types of human resource
assets 16
2.1.5 Human
resources accounting valuation methods 18
2.1.6 Application of human resource accounting 27
2.1.7 Human
resource accounting and international
financial
reporting standard 28
2.1.8 Concept of financial performance 31
2.1.8.1
Selected indicators of financial performance 34
2.2 Theoretical Framework 37
2.2.1
Human capital theory 37
2.3
Empirical Review 38
2.4 Summary
of Literature Review 53
2.5
Gap in Literature 59
CHAPTER 3: RESEARCH METHOD
3.1 Research Design 61
3.2
Area of the Study 61
3.3
Population of the Study 61
3.4
Sample Size Determination 62
3.5
Method of Data Collection 64
3.6 Model Specification 64
3.6.1 Measurement
of variables 66
3.7 Data Analysis Technique 66
CHAPTER 4: DATA PRESENTATION, ANALYSIS AND DISCUSSION
OF FINDINGS
4.1 Data Presentation 67
4.2 Pre-estimation
Tests 67
4.2.1 Stationarity/
unit root tests 68
4.2.2 Cointegration test results 68
4.2.3
Descriptive statistics 70
4.3
Data Analysis for Hypothesis One 73
4.3.1
Hausman test 73
4.3.2
Panel data test 74
4.4 Data Analysis for
Hypothesis Two 76
4.4.1 Hausman test 76
4.4.2 Panel data test 77
4.5 Data Analysis for
Hypothesis Three 79
4.5.1 Husman test 79
4.5.2 Panel data test 80
4.6
Discussion of Results 81
CHAPTER 5: SUMMARY OF
FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1
Summary of Findings 84
5.2
Conclusion 84
5.3
Recommendations 85
5.4
Contribution to Knowledge 85
REFERENCES 78
APPENDIX 83
CHAPTER 1
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Resources must be assembled together
in other to achieve organizational objectives. The term resources refer to all
manner of assets including human, machine, material and monetary elements that
is used in the production of goods and services to satisfy organizational
needs. It is a widely accepted fact that the success of any organization,
business or otherwise, to a great extent, depends upon the quality, caliber and
character of the people working in it (David and Stephen, 1988 as cited in
Akintoye 2012). An organization having vast physical resources, with latest
technology may find itself in the midst of severe financial crisis in case it
does not have right people to manage and conduct its affairs. In this era of
industrial revolution and high technological developments where robotics and
highly censored machines carry out production and packaging processes of
manufacturing companies, the importance of human efforts referred as human
resources has in no way diminished as these machines cannot operate themselves
without human interventions. It is unfortunate that even till now accountants
have not been in a position, to evolve a generally accepted system to value,
record and capitalize this important asset known and referred to as human
resources despite the call by researchers across the world.
To
ensure effective performance of any organization, the efficiency of people must
be augmented in the right perspective. Without human resources, the other
resources cannot be operationally effective. The real health of the
organization is indicated by the human behavior variables such as personnel
loyalty, skill, motivation and capacity for effective interaction,
communication and decision making. Machines, materials, money and man are
resources required for an organization to perform effectively. The first three
“Ms” can be substituted by one thing or the other to yield a satisfiable result
but man which constitutes the human resource cannot be substituted to achieve
any result. In the chain of production, inputs must be combined to produce
output which is made possible by the function of man. According to David and
Stephen (1988), all organizational resources are categorized into animate and
inanimate resources in which man, otherwise known as human resources, is
considered animate whereas others are seen as inanimate or physical resources.
Therefore, the success or otherwise of any organization depends on how best the
scare inanimate (physical) resources are utilized by the animate (human)
resources (David and Stephen, 1988).
Human resource Accounting (HRA)
involves accounting for expenditure related to human asset in an organization
as opposed to traditional accounting which merely expenses these costs and reduces
profits which to our mind sub optimize financial reporting (Akintoye, 2012). It
is accounting for the value of persons working in an organization for the
enhancement of the information needed for decision making by the users of
financial information. The assessment of corporate performance may not be
conclusive without the consideration of the value of human asset. In the
current business environment, human capital is regarded as a key source of
competitive advantage. With the advent
of knowledge – based economy, companies view their employees as an important
resource and invest heavily in them. It is regrettable that the current
accounting reforms under the auspices of IFRS did not reposition the treatment
of people which is seen as the greatest of all capital assets in the statement
of financial position of corporate entities.
1.2 STATEMENT TO THE PROBLEM
Organizations invest heavily on
human resources because they want to maximize best returns for their
investment. When best hands are engaged in the production of goods and
services, the result is effective performance for the good of management.
Investment on human resources involve costs incurred by an organization to
recruit, select, hire, train, retrain and develop the workforce for effective operational
performance. The essence of this investment is to produce positive economic
value for the organization. However, these investment on human asset is not
reflected in the statement of financial position rather, it is expensed in the
statement of comprehensive income for the current period to reduce income and
invariably the value of the business. In the accounting point of view, assets
are not to take the place of liabilities. Since human resources are considered
as important asset by entities, it should be treated as such by placing it in
the place of assets rather than treating it as a mere expense.
The problem of expensing investments
made on human resources is as a result of the conventional accounting practice
still in place. Again, critics of human resource accounting capitalization have
argued that the period of existence of human resource is uncertain and valuing
them under uncertainty in future seems to be unrealistic. As a result, the
question of what form and manner the value of human resources to be included in
the financial statement becomes a big illusion in the accounting profession.
It is in the interest of
stakeholders to have the information of their investment and the associated
returns there from. The value of a firm’s human resources is helpful to
potential investors and other stakeholders in making long-term investment
decisions. It provides the organization with a more accurate account of its
returns on the total financial, physical and human resources employed in the
course of their operation. This aligns with the opinion of Ahangar (2011) that
the essence of human asset or human resource accounting is to establish a
generally acceptable model of valuation for human cost and ensuring that the
value of human asset that drives organizational performance is adequately
represented and disclosed in the financial statement.
1.3 OBJECTIVES OF THE STUDY
The main objective of this study is
to investigate the effect of human resource accounting on financial performance
of listed firms in Nigeria. The specific objectives are as follows:
1. To evaluate the effect of HRA
(acquisition cost and directors remuneration) on profit after tax of listed
firms in Nigeria.
2. To examine the effect of HRA
(acquisition cost and directors remuneration) on return on assets of listed
firms in Nigeria.
3. To investigate the effect of HRA
(acquisition cost and directors remuneration) on return on equity of listed
firms in Nigeria.
1.4 RESEARCH QUESTIONS
The following research questions
guided this study.
1. To what extent does human resource
accounting (acquisition cost and directors remuneration) affect profit after
tax of listed firms in Nigeria?
2. In what ways does human resource
accounting (acquisition cost and directors remuneration) affect return on asset
of listed firms in Nigeria?
3.
To what extent does human resource
accounting (acquisition cost and directors remuneration) affect return on
assets of listed firms in Nigeria?
1.5 RESEARCH HYPOTHESES
The study is guided by the following
hypotheses:
1.
Human resource accounting (acquisition cost and
directors remuneration) does not have significant effect on profit after tax of
listed firms in Nigeria.
2.
Human resource accounting (acquisition cost and
directors remuneration) does not have significant effect on return on asset of
listed firms in Nigeria.
3.
Human resource accounting (acquisition cost and
directors remuneration) does not have significant effect on return on equity of
listed firms in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
The study, human resource accounting
and the financial performance of listed manufacturing firms Nigeria will be of
valuable importance to different group of people.
Employees: The study will enable employees to reappraise themselves and
know that they possess an invaluable contribution to the effective performance
of the company just like every other asset. Despite the cost of purchase, other
assets are compensated for wear and tear through depreciation and capital
allowances, human assets should also be compensated for advancement in
knowledge for effective service delivery and active service leading to old age.
Having known the value relevance of human resources to organizational
performance, this study will help employees of both public and private sectors
to agitate for a better compensation pattern in the form of pension and
gratuity to be operational in both government and non-government entities.
Management: The study will also enhance police formulation of the
company to focus on the right manpower that will drive the company to
profitability and the achievement of the corporate objectives of the company.
Government: The government is always at the receiving end through tax
revenue. An addition in the pay cheque of any employee will translate to an
increase in taxable income and disposable income of the employee which will
also reflect in the economy generally.
Researchers: The study is a good source of reference to researchers and
scholars in the academic community. It shall be a useful reference point on
this topic or related top.
1.7 SCOPE OF THE STUDY
The study examined human resource accounting and financial
performance of listed firms in the Nigerian Stock Exchange. Information for
data analysis is restricted to those as contained in the annual reports of the
firms that constitute the sample size of the study. The scope of the study in
respect to time frame shall cover a period of 5 years starting from 2015 to
2019. This period is intended to cover current data relating to the variables
under consideration.
1.8 DEFINITION OF TERMS
Earnings Per Share: The ratio of net income
to total number of outstanding shares of a company. It measures the potential
profitability of a company. The higher the earnings per share of a company, the
better is its profitability.
Human Resource
Accounting: The process of identifying, measuring, quantifying and
communicating the totality and reliable estimates of human resource investments
of an organization to interested parties.
Human Resource Cost: The reliable estimates
of expenditure with respect to acquisition, training and development as well as
welfare of employees, resulting to the generation of an entity’s economic
value.
Profit after Tax: Net of result of gross
profit over administrative expenses.
Return on Equity: The ratio of net income
to shareholders’ equity. It is a measure of effectiveness in the management of
an entity’s assts to create profit.
Return on Asset: The ratio of net income
to total assets. It is an indicator of how profitable a company is relative to
its total assets.
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