ABSTRACT
The Crux
of this study is to examine the impact of strategic human resources accounting
on small and medium scale enterprises financial performance in Lagos, from
2015-2019. Using the Ordinary least square analytical technique, secondary data
from selected SMEs in Lagos State was obtained. The data of this study were
extractedfrom published annual report and account of the selected SMEs. The
analysis revealed that acquisition cost has negative impact and insignificant
effect on the return of investment of the selected SMEs in Lagos State. Training
cost is said to have a positive impact and significant effect on the return on investment
of the selected SMEs. While staff cost has positive impact and insignificant
effecton the return of investment of selected SMEs in Lagos State. The study
thereby recommend that SMEs should focus and invest more in the training and
development of staff and ensure that there is good staff retention and how rate of labour turnover.
The study also recommend that accounting bodies should ensure that there is a
regulation guiding the process for human reporting in SMEs, organization other
sectors. This will impact positively to their financial performance.
Keywords; Human resources accounting, acquisition cost,
training cost, staff cost, financial performance, return on investment (ROI).
TABLE OF
CONTENTS
TITLE PAGES
Title
Page
i
Integrity
& Attestation
ii
Certification
iii
Dedication iv
Acknowledgement
v
Abstract vi
Table
of Content
vii
CHAPTER ONE
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 4
1.5
Research Hypothesis 5
1.6 Significance of the Study 5
1.7 Scope and Limitation of the Study 6
1.8 Organization
of the Study 6
1.9 Definition of Terms 6
CHAPTER
TWO
LITERATURE
REVIEW
2.1 Preamble
8
2.2 Conceptual
Framework 8
2.2.1 Strategic Human Resources Accounting 8
2.2.1.1 Methods of Accounting
valuation of human resources 9
2.2.1.2 Need for human resources
accounting 12
2.2.1.3 Benefits of Strategic
Human Resources Accounting 14
2.2.1.4 Limitation of Strategic
Human Resources Accounting 15
2.2.1.5 Argumenta against the
concept of Human Resources Accounting
15
2.2.2 Acquisition cost and
Financial Performance 16
2.2.3 Training cost and
Financial Performance
17
2.2.4 Staff cost and Financial
Performance 17
2.2.5 Financial Performance 18
2.2.5.1 Measurements of Financial Performance
19
2.2.5.2 Financial Statements Analysis
25
2.3 Theoretical Framework
26
2.3.1 Human Capital Theory 26
2.3.2 Transaction Cost Theory 27
2.3.3 Resources
Based Theory 28
2.4
Empirical Framework 29
2.4.1
Acquisition Cost
29
2.4.2
Training Cost
30
2.4.3 Staff
Cost 31
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Preamble 36
3.2 Restatement
of Research Question 36
3.2.1 Restatement of Research hypotheses 36
3.3 Research Design 37
3.4 Population of the Study 37
3.5 Sample and Sampling
Technique 38
3.5.1 Sample Size
38
3.6 Sources and Data Collection 38
3.7 Method of Data Analysis and Model Specification 39
3.8 Test of Validity and Reliability 39
3.8.1 Validity
39
3.8.2 Reliability
40
3.9 Limitation of Methodology
40
CHAPTER FOUR
DATA
PRESENTATION, ANALYSIS AND
INTERPRETATION
OF RESULTS
4.1.
Preamble 41
4.2. Descriptive Statistics 41
4.3 Panel Data Regression Estimation 42
4.3.1 Test of Hypotheses 1
43
4.3.2
Test of Hypotheses 2
44
4.3.3
Test of Hypotheses 3
44
4.3.4
Co efficient of Multiple Determination (R2) 45
4.3.5
Overall test of Significance of the Estimated Panel Method 45
4.4 Post
Estimation Test 45
4.4.1 Normality Test 45
4.4.2 Auto Correlation Test 45
4.5 Discussion
of Findings
46
CHAPTER FIVE
SUMMARY, CONCLUSION AND
RECOMMENDATIONS
5.1 Preamble 47
5.2 Summary 47
5.3 Conclusion 48
5.4 Recommendations 48
5.5 Suggestion for further studies 49
References
50 Appendix
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The
growing importance of human resources accounting is a determinant of economic
success at both the macroeconomic and microeconomic levels which dictates that
firms need to adjust to this new economic reality. Specifically, if human
capital is a key determinant for organizational success, then investment in the
training and development of employees to improve performance is a critical
component of this success. This broad socioeconomic shift underscores a growing
need for measuring and analyzing human capital when making managerial and
financial decisions. Yet important human resource decisions involving hiring,
training, compensating, productivity and other matters are often made in the
absence of specific information about the different cost and benefit of these
particular choices. Human resources accounting is a managerial tool that can be
used to gain this valuable information by measuring the cost of recruiting,
hiring, compensating and training employees. It can be used to evaluate
employee training programs, increase productivity and improve managerial
decision making regarding promotions, transfers, layoffs, replacement, and
turnover. (Prabhakar, 1993).
The
American Accounting Association’s Committee on Human
Resource Accounting (1973) has defined Human Resource Accounting as “the
process of identifying and measuring data about human resources and
communicating this information to interested parties”.
Human resource accounting, thus, not only involves measurement of all cost
investment associated with the recruitment, placement, training and development
of employees, and also the qualification of the economic value of the people in
an organization.
The
past few decades have witnessed a global transition for manufacturing to
service based economies. The fundamental difference between the two lies in the
very nature of their assets. In the former, the physical assets like plants,
machinery, materials etc. are of utmost importance. In contrast, in the latter,
knowledge and attitudes of the employees assume greater significance. For
instance, in the case of an I.T firm, the value of its physical assets is
negligible when compared with the value of the knowledge and skills of the
personnel. Similarly, in hospitals, academic institutions, consulting firms
etc. the total worth of the organization depends mainly on the skills of its
employees and the services they render. (Flamholtz, 1971). Hence, the success
of these organizations is contingent on the quality of their Human Resource,
its knowledge, skills, competence, motivation and understanding of the
organizational culture. In knowledge-driven economies, it is imperative that
the humans be recognized as an integral part of the total worth of the human
capital. It is necessary that some methods of quantifying the worth of the
knowledge, motivation, skills and contribution of the human elements as well as
that of the organization processes like recruitment, selection, training etc.
which are used to build and support these human aspect is developed. Human
resource accounting (HRA) denotes just this process of
quantification/measurement of the Human Resource. (Flamholtz, 1999).
Human
resources accounting centers on the valuation of human capital available to
organizations and its recording and subsequent reporting in the financial
statement of the organization. Human capital is the main factor towards
achieving the organizational goals of maximizing the wealth of the owner. The
economist Milton Friedman states, from the broad and general point of view,
that total wealth includes all sources of income consumable services. One of
such is the production capacity of human beings and accordingly, this is one
form in which wealth can be held. (Karl-Erik Sveiby, 2004).
Human
resource accounting facilitates effective and efficient use of human resources.
Human resources along with financial and material resources, contributes to the
production of goods and services in an organization. Physical and monetary
resources by themselves cannot improve efficiency or contribute to an increased
rate of return on investment. (Anjorin, 1992). It is through the combined and
concerted effort of people that monetary and material resources are harnessed
to achieve organizations goals. (Likert,1971). Human resources in the business
organizations cannot be over-emphasized in this modern world, as human
resources therefore is the most important assets of an organization. Infact,
with additional training and experience gained over a period of time, they tend
to do well on the job. This fact however, is ignored when a firm’s
balance sheet is prepared. All expenses relating to recruitment, training and
development of employees are charged against the revenues of a particular
accounting period. The expenses on human resources are fixed in nature and do
not offer any immediate return.
The
nature accrues to the firm over a long period i.e. as long as the employee
remains with the firm as a result of human resources accounting. Hence such
costs should be capitalized and amortized over the entire period so that the
Balance sheet gives a true and fair view of the state of affairs of a business.
(Brummet, 1983). Since human resources are capable of enlargementover a period
of time, there should be innovative investment in its people and how the value
of people changes over a period of time. Human resources accounting is one of
such methods which endeavor to reduce the cost, measures and improve the value
of people to an organization.
The
link between human resources policies and organizational performance is the use
of employee surveys combined with benchmarking over the years. When employees
are viewed as assets rather than simply costs, there is a positive impact on an
organizational performance. A mix of financial and non-financial measures
(actual versus budget, cash flow, customer satisfaction, economic value added,
employee satisfaction, employee turnover, safety, sales and shareholders total
return) leads to improved organizational performance.
1.2
STATEMENT OF THE PROBLEM
Though the
idea of accounting
for human resources
started many years
back, the concept
still lacks general acceptability (Bowers,
1973). Many authors
and scholars have
conducted researches on
how humans within
an organization can be
valued and reported
in the financial
statements of such
organization.(Schulz, 1961;
Hermannson, 1964; Likert,
1967; Bowers, 1973;
Flamholz, Bullen& Hua,
2002). Human resource
accounting and reporting by
corporate organizations is
still at the
infant stage in
Nigeria. 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 Unilever
Plc, Nigeria Breweries,
Cadbury Nigeria Plc,
Nestle Foods Nigeria
Plc, Access Bank Plc,
Zenith Bank Plc,
amongst others. The
investments by these
companies in human
capital development are normally
not reflected in
their balance sheets
as assets but
expensed in the
profit and loss
accounts. (Okapla&Chidi, 2010;
Micah,
Ofurun&Ihendinihu, 2012). The
major challenges encountered
in the recognition
of human resources as
an asset rest
largely on its
characteristics,
quantification in monetary
terms and the
method of reporting. What
are the constraints
in the application
of human resource
accounting by organizations?
Micah et
al (2012) did
a study on
firms’
financial performance and
human resource accounting
in Nigeria. Descriptive,
correlation and regression
statistical techniques were
used in analyzing the
data. The result
revealed that the
combined effect of
Firm Financial Performance accounted for 75.9% of the
variation in Human Resource
Accounting Disclosure (HRAD) with
an F– ratio
3.581 being significant
at 5% confidence
level. The positive correlation between
Return on Equity
(ROE) and Human
Resource Accounting Disclosure (HRAD) supposes
that an increase
in return on
equity encourage firm
in reporting human capital
information so as
to establish trustworthiness with
stakeholders; enhance external reputation, appear
legitimate in the
public eye and
avoid cost for
non-legitimacy.
1.3
OBJECTIVES OF THE STUDY
The
main objective of the study is to examine and investigate the impact of human
resources accounting on the financial performance of small and medium scale
enterprises. Specifically, the study sought to;
i)
Determine the relationship between Acquisition Cost and Return of Investment
(ROI) of the selected small and medium scale enterprises.
ii) Determine the significant influence of
Training Cost on Return on Investment(ROI) on the selected small and medium
scale industry.
iii)
Analyse the effect of Staff Cost on Firm's Return on Investment (ROI) of
selected small and medium scale enterprises.
1.4
RESEARCH QUESTIONS
In
the course of carrying out this research, the following questions shall be
provided answers for.
i. Is there any relationship between Acquisition
Cost and Return of Investment of small and medium scale enterprise?
ii
. What effect does Training Cost have on
the Return on Investment of small and medium scale enterprises?
iii..
To what extent does the Staff Cost
affects Return of Investment of the SMEs?
1.5 RESEARCH HYPOTHESIS
Hypothesis
will be drawn to decide whether there is a positive or negative correlation
between Human Resources Accounting and firms financial performance. If HRA has
significant or not significant consequences on the financial performance on
small and medium scale enterprises. During the course of study, the following
research hypotheses shall be tested.
1.
Ho: There is no relationship between Acquisition Cost on Return on investment
in the small and medium scale enterprises.
Hi: There is a relationship between Acquisition
Cost on Return on investment in the small and medium scale enterprises.
2.
Ho: Training Cost is not related to Return on Investment in small and medium
scale enterprises.
Hi:
Training Cost is positively related to Return on Investment in small and
medium scale enterprises.
3.
Ho: There is no relationship between Staff Cost on Return on Investment in the
small and medium scale industry.
Hi: There is relationship between Staff Cost on
Return on Investment in the small and medium scale industry.
1.6 SIGNIFICANCE OF THE STUDY
At
the end of this study,
1)
The small and medium scale enterprises will learn how to utilize its human
resources to the maximum advantage.
2)
The findings of this study will enable the management of small and medium scale
enterprises to be sensitive to the need of the human resources and also to
adopt strategy to decide effective leadership in order to optimally utilize
their human resources.
3) The study will be useful to other researcher
who may use this as a basis to conduct related research on the topic.
1.7 SCOPE OF THE STUDY
The
focus of the study is in the perspective of strategic human resources
accounting in an organization and how it enhance higher financial performance.
Small and Medium Scale Enterprise will be studied to know the roles of
strategic human resources accounting on their financial performance. The
essence is that most of the small and medium scale enterprises are failing to
control the opportunity of increasing their profitability through strategic
human resources accounting practice due to lack of proper understanding of it.
Small and Medium Scale Enterprise that have the certificate of operation from
the corporate affairs commission in Nigeria or with the Ministry of Finance in
Nigeria are considered for this study. The work takes into consideration is
only Small and Medium Scale Enterprise in the area of research work.
1.8 LIMITATIONS OF THE STUDY
In
this study, there is bound to be limitation to be encountered during the course
of this study. These limitations need to be stated to aid the users of the
research findings for effective decision making.
i.
Accuracy of the collected data. The researcher has scheduled all research
activities within a timeline to facilitate finalizing the research on time,
thus will be accurate as possible to the research topic.
ii.
Time Constraints
iii.
The limited funds that affect the coverage of the area in which the research is
carried out.
1.9 DEFINITION OF TERMS
i.
ACCOUNTING: It is the systematic process of identifying, recording, measuring,
classifying, verifying, summarizing, interpreting and communicating financial
information.
ii.
RESOURCES: Something to be used to help
achieve an aim.
iii.
ORGANISATION: An organized group with a particular purpose.
iv.
HUMAN RESOURCES:These are personnel and man power available in an organization.
It describe the people who make up the work force of an organization,
industries, business sector or economy. It is also the department responsible
for managing resources related to employees.
v.
SMALL AND MEDIUM SCALE ENTERPRISES:This is an organization that employs a small
number of workers and does not have a high volume of sales. These are
industries whose personnel number falls below certain limit.
vi.
FINANCIAL PERFORMANCE:It is a subjective measure of how well a firm can use
assets from its primary mode of business and generating revenues. It is also
the act of performing financial activities.
vii.
HUMAN ASSET ACCOUNTING : This involve in identifying, measuring, capturing,
tracking and analyzing the potential of the human resources of a company and
communicating the resultant information to the stakeholders of the company.
viii.
HUMANCAPITAL: It is set of skills which an employee acquires on the job through
training and experience which increases his value in the market place.
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