Abstract
This
study investigates the impact of intellectual capital on the profitability of
brewery companies in Nigeria, focusing on Nigeria Breweries PLC, Guinness
Nigeria PLC, and Champion Breweries PLC. The research employs an ex-post facto
research design, utilizing historical data from 2008 to 2018 sourced from
relevant journals, textbooks, and financial statements of the Nigerian Stock
Exchange. Simple random sampling technique was applied to select the sample
size comprising the aforementioned breweries.
The
research objectives were to evaluate how human capital efficiency, structural
capital efficiency, and capital employed efficiency influence the net profit
margin of brewery companies in Nigeria. Three null hypotheses were formulated
and tested: (H01) human capital efficiency has no significant effect on net
profit margin, (H02) structural capital efficiency has no significant effect on
net profit margin, and (H03) capital employed efficiency has no significant
effect on net profit margin.
Data
analysis was conducted using a simple linear regression model with Statistical
Package for Social Sciences (SPSS) version 22. The findings reveal that human
capital efficiency positively and significantly affects the net profit margin
of brewery companies in Nigeria. However, structural capital efficiency does
not show a significant impact on profitability. On the other hand, capital
employed efficiency demonstrates a significant effect on profitability.
In
conclusion, the study establishes that intellectual capital, as measured by
human capital efficiency and capital employed efficiency, significantly
contributes to the profitability of brewery firms in Nigeria. However,
structural capital efficiency does not exhibit a significant influence on
profitability within the brewery industry in Nigeria.
Based
on the findings, recommendations are made to optimize intellectual capital
within Nigerian brewery companies. These recommendations include efforts to
enhance profitability through recruiting capable sales representatives,
training, and providing necessary infrastructure. Moreover, deliberate
strategies should be implemented to recruit, train, and retain competent staff
to foster intellectual capital growth. The government is urged to prioritize
investment in intellectual capital development to propel Nigeria towards
economic advancement. Additionally, there's a call for a review of educational
policies to encourage public-private partnerships in high-quality human capital
training. Finally, it's recommended that stock markets in Nigeria include
complementary reports on intellectual capital to enhance transparency and
decision-making processes.
This
study contributes to the existing body of knowledge by emphasizing the
importance of intellectual capital in driving profitability within the Nigerian
brewery industry.
TABLE OF CONTENTS
CHAPTER ONE
INTRODUCTION
1.1
Background to the Study
1.2
Statement of the Problems
1.3 Objectives
of Study
1.4 Research
Questions
1.5 Research Hypotheses
1.6 Significance of the Study
1.7 Scope/Limitations of the Study
1.8 Definition of Terms
CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1 Conceptual
Framework
2.1.1 Concept
of Intellectual Capital
2.1.2 Concept
of Human Capital
2.1.3 Importance
and implications of Human Capital
2.1.4 How to Increase Human Capital
2.1.5 Concept
of Structural Capital
2.1.2.1 Importance
of Structural Capital
2.1.6 Concept
of Capital Employed
2.1.6.1 Characteristics
of Capital
2.1.6.2 Fixed
Capital and Working Capital
2.1.6.3
Functions of Capital
employed
2.1.6.4 Importance of Capital
2.2 Theoretical Framework
2.2.1 Resource
Based View Theory
2.2.2 Human Capital Theory
2.2.3 Social Capital Theory
2.3 Empirical Review
2.4
Gap in Literature
CHAPTER THREE
RESEARCH METHODOLOGY
3.1
Research
Design
3.2 Area
of the study
3.3 Population of the Study
3.4 Sample
and Sampling Techniques
3.5 Method
of Data Collection
3.6 Model
Specification
3.7 Data
Analysis Techniques
3.8 Measurement
and Description of Variables
CHAPTER FOUR
DATA ANALYSIS AND RESULTS
4.1 Data Presentation
4.2 Data Analysis
4.2.1 Correlation Analysis
4.2.2 Data Analysis for Hypothesis
CHAPTER FIVE
SUMMARY, CONCLUSION AND
RECOMMENDATION
5.1 Summary
5.2 Conclusion
5.3 Recommendation
REFERENCES
CHAPTER ONE
INTRODUCTION
1.1 Background
to the Study
A
firm’s intellectual capital can be thought of as a form of unaccounted capital
in the traditional accounting system. Davies and Waddington (1999) said that
the traditional accounting system looks largely at separable assets although
recognition is given to some intellectual capital under the heading goodwill.
Firms need more useful and comprehensive non-financial information about the
operating activities of firms. Traditionally, many performance measures have
been based around financial aspects, omitting important non-financial aspects
including the importance of dynamic capability through accumulating research
and development as well as marketing capability over time, to further enhance
firm performance (Hsu & Wang, 2010).
Despite
banks spending a lot of resources in training its human capital, investing in
IT, structural capital and innovation, intellectual capital which is the
possession of knowledge and experience, professional knowledge and skill, good
relationships, and technological capacities, which when applied give organizations
competitive advantage has not been fully recognized in the preparation of
financial statements. One of the greatest challenge facing the accounting profession is understanding
the huge difference between its balance sheet and market valuation. This gap
represents the core value of the company – its intellectual capital represented
by brands, products, competitive advantage, patents, trademarks, customer
relationships, Research and Development, human capital etc.
Seetharaman, Hadi, and
Saravanan,(2011) opined that the present
financial accounting framework is criticized, especially in the USA and Europe,
as inadequate and failing to communicate the most important assets and
resources of today’s business, known as intangible assets or intellectual
capital. As a result, there is a huge value gap and distortions between a
business entity’s values as reported in the financial statements with the value
put by investors on the stock market or even in merger and acquisitions cases.
Komnenic and Pokrajcic (2012) posited that in the new knowledge economy
(k‐economy), knowledge rather than physical assets drives innovations, revenue
and profits growth, and nurtures new competitive advantages.
Intellectual capital is the intangible
value of a business, covering its people (human capital), the value inherent in its
relationships (Relational capital), and everything that is
left when the employees go home (Structural capital), of which Intellectual property (IP) is but one
component. It is the sum of everything everybody in a company knows that
gives it a competitive edge. The term is used in academia in an attempt to
account for the value of intangible assets not listed explicitly
on a company's balance sheets. On a national level,
intellectual capital is referred to National Intangible Capital (NIC) (El-Bannany,
2008). A second meaning that is used in
academia and was adopted in large corporations is focused on the recycling
of knowledge via Knowledge management and Intellectual Capital Management (ICM). Creating,
shaping and updating the stock of intellectual capital requires the formulate
on of a strategic vision, which blends together all
three dimensions of intellectual capital within the organizational context
through exploration and exploitation, measurement and
disclosure Intellectual capital is used in the context of assessing the
wealth of organizations. A metric for the value of intellectual capital is
the amount by which the enterprise value of a firm exceeds the
value of its tangible (physical and financial) assets. The IFRS (International
Financial Reporting Standards) committee developed the International Accounting
System 38 with the purpose of prescribing the accounting treatment for
intangible assets. IAS 38.8 defines an intangible asset as an identifiable
non-monetary asset without physical substance. An asset controlled by the
entity as the result of past events (for example purchase or self-creation) and
from which future economic benefits (inflows of cash or other benefits) are
expected.
Kaplan
and Norton (1996) argued that intellectual
capital which is made up of human capital, structural capital, and
Relational/customer capital if well integrated will lead to competitive
advantage and higher performance and led to a shift from one dimensional
principle of performance evaluation towards a multi-dimensional level
incorporating non-financial measures such as customer perspective, learning and
growth and internal business process. It will therefore impact the
profitability and efficiency of any firm that manages it well positively impact
on a firm’s profitability and efficiency. This is because the intellectual
capital is the asset of a firm which controls other physical asset to meet up
with the firm’s goals and objectives and bring forth tremendous inflow which
represents as the profitability of the firm.
The
profitability of any firm is based on its returns on assets, return on
investments and return on equity and its profit margin. No investor can invest
in any firm which its profitability pointers are poor. The richness and
healthiness of these pointers can only be determined by the way in which the
firm handles its intellectual capital as it is known as the main driving force
that keeps a firm in business. Banks as one of the major and influential firms
to the Nigerian economy invest in their employees in order to create good
relationship with their customers, attract new customers and create goodwill
that will yield future returns for the bank. This study tends to evaluate how
intellectual capital accounting will benefit banks in making profits for the
bank and their shareholders.
1.2
Statement of the Problems
In the
last two decades, industries has experienced unprecedented growth coupled with
impressive performance over the same period. The industry has remained largely
profitable in spite of the economy performing poorly in some years and facing
adverse effects of the global financial crisis.
Lev
and Radhakrishan, (2003) aver that Intellectual Capital is both invisible and
intangible and as such the value of knowledge cannot be captured well by any
traditional measure. In view of the fore going, scholars of financial and
corporate reporting in their various studies have both theoretically and
empirically examined the impact of Intellectual Capital on firms' profitability
but results have rather than resolve the issues remain inconsistent and produced
mixed outcomes. Due to these inconsistent results, the effect of investing on
intellectual capital has been in doubt and this work is aimed at determining if
truly there is any significance effect of intellectual capital on the overall
profitability of banks in Nigeria.
1.3 Objectives
of Study
The main objective of the study is to evaluate the effect of
intellectual capital on the profitability of brewery companies in Nigeria. The
specific objectives to guide the course of this research work are;
i.
To determine how human capital efficiency affects the net profit margin
of brewery companies in Nigeria.
ii.
To assess if structural capital efficiency affects the net profit margin
of brewery companies in Nigeria.
iii.
To find out how capital employed efficiency affects the net profit
margin of brewery companies in Nigeria.
1.4 Research Questions
The following are the questions that will guide the research
in the course of this study;
i.
To what extent do human capital efficiency affect net profit
margin of brewery companies in Nigeria?
ii.
To what extent do structural capital efficiency affect net
profit margin of brewery companies in Nigeria?
iii.
To what extent do capital employed efficiency affect net
profit margin of brewery companies in Nigeria?
1.5 Research Hypotheses
The following are the research hypotheses
stated in null form;
H01: Human capital efficiency has no significant
effect on the net profit margin of brewery companies in Nigeria
H02: Structural capital efficiency has no
significant effect on the net profit margin of
brewery companies in Nigeria
H03: Capital employed efficiency has no significant
effect on the net profit margin of brewery companies in Nigeria
1.6
Significance of the Study
This work
will be beneficial to the following:
The
study will therefore be of great importance to the following interest groups:
i.
Human Resource Managers and Consultants: The human resource managers and consultants
will find the report of this research useful as it will provide information so
dearly needed to take rightful decisions concerning their human resources. The
study will provide managers with tools for measuring the cost implication of
their human resources related decisions. The information in this research will
help human resource managers and consultants in formulating policies on human
capital management.
ii.
Organized Labour Unions: The organized labour unions will find the
report of this research a ready material for pressing home their demands as it
will provide information on the worker contribution to the banks which will be
compared to the compensation paid to the workers in form of salaries and
allowances thereby providing a basis for salary negotiations with employer of
labour.
iii.
Accounting bodies: Accounting bodies such as the Institute of
Chartered Accountants of Nigeria (ICAN), the Association of National
Accountants of Nigeria (ANAN), the Association of Cost and Management
Accountants (ACMA), etc. as well as the accounting regulatory organizations
particularly the Financial Reporting Council of Nigeria (FRC), (formerly the
Nigeria Accounting Standards Board), will use the information to be provided by
this research to produce standards which will be used by organizations in their
financial reporting.
iv.
Students, scholars, academics: Students, scholars, academics, as well as
professional researcher. They will from time to time be faced with the
challenge of conducting researches on this subject matter and will find this
research report a reference material.
v.
The federal Government of Nigeria: The federal government of Nigeria will also
find this work a reference material for planning, controlling, directing and
for corporate decision making. It will also serve as a reference document for
policy formulation and implementation by the government and its agencies.
1.7
Scope/Limitations of the Study
The
study covers a period of ten years (2009 to 2018) and the researcher will make
use of Nigeria Breweries PLC, and Guinness Nigeria PLC and Champion Breweries
PLC which are listed on the Nigeria stock Exchange as at 31st December, 2018.
There several limitations and challenges
which the researcher will have to encounter during the course of this work,
some of them are individually listed below:
1. Materials: The sourcing of relevant materials that will be used for the study will
not be an easy task, because the researcher will have to visit libraries, use
different search engines and surf the internet etc, in order to get a
first-hand information, which most of the times, the materials will not be
easily accessible.
2. Time: The
time often allotted to the study is usually not enough. The researcher will
have to struggle with the limited time and still ensures that the best result
is gotten from this research work. Therefore, time constraint will be a major
challenge.
1.8 Definition
of Terms
Capital employed: This is the total
amount of capital used for
the acquisition of profits. It is the value of all the assets employed in a business, and can
be calculated by adding fixed assets to working capital or by subtracting current liabilities from total
assets.
Human Capital: This is the skills,
knowledge, and experience possessed by an individual or population, viewed in
terms of their value or cost to an organization or country.
Intangible assets: These are non-monetary
assets which are without physical substance and identifiable (either being
separable or arising from contractual or other legal rights). Intangible assets
meeting the relevant recognition criteria are initially measured at cost,
subsequently measured at cost or using the revaluation model, and amortized on
a systematic basis over their useful lives (unless the asset has an indefinite
useful life, in which case it is not amortized).
Intellectual capital: Intellectual capital is
considered an asset, and can broadly be defined as the collection of all
informational resources a company has at its disposal that can be used to drive
profits, gain new customers, create new products or otherwise improve the
business.
Profitability: This is the degree to which
a business or activity yields profit or financial gain. Profitability can
further be defined as the ability of a business to produce a return on an
investment based on its resources in comparison with an alternative investment.
Structural capital: This is one of the three
primary components of intellectual
capital, and consists of the supportive infrastructure, processes, and
databases of the organization that enable human capital to function. Structural capital is owned by an organization and remains
with an organization even when people leave.
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