ABSTRACT
In recent times a new high technology, information, and innovation based environment has gradually taken the centre stage in the global economy. Under the new dispensation, knowledge, ability, skills, experience and attitude of workers, assume greater significance even as organizations use intellectual capital as a critical resource to enhance their performances. Consequent upon this, service firms as well as manufacturing organisations use intellectual capital with their physical assets to sharpen their competitive edge while organizations which have managed their intellectual capital better, are observed to have achieved stronger competitive advantage than the general enterprises. Following from above, it is expected that there should be a positive relationship between intellectual capital and financial performance. Empirical records of studies on this relationship in some developed nations showed divergent views. Unfortunately, no empirical records on the relationship of intellectual capital and financial performance in the Nigeria Banking sector exist. This study had the broad objective of using the Value Added Intellectual Coefficient (VAIC) model to investigate if there is a positive and significant relationship between the Intellectual Capital indices (such as Human Capital Efficiency, Structural Capital Efficiency and the Capital Employed Efficiency) and financial performance variables (which included Return on Assets, Return on Equity, Employee productivity, Growth in Revenue and Market to book value ratio) of selected banks in Nigeria. The study adopted the ex-post facto research design. It was systematically conducted using longitudinal time series data generated from the Nigeria Stock Exchange and from annual reports and accounts of the selected banks in Nigeria spanning from year 2000 to 2011.
The hypotheses of the study were:
(i) The indices of the value added intellectual coefficient of a bank do not positively and significantly affect the bank’s Return on Assets (ROA).
(ii) The indices of the value added intellectual coefficient of a bank, do not positively and significantly affect the bank’s Return on Equity (ROE).
(iii) The indices of the value added intellectual coefficient of a bank, do not positively and significantly affect the Employee Productivity (log EP) of the bank.
(iv) The indices of the value added intellectual coefficient of a bank, do not positively and significantly affect the bank’s Growth in Revenue (GR).
(v) The indices of the value added intellectual coefficient of a bank, do not positively and significantly affect the bank’s Market to Book value ratio (MB).
The dependent variables were:
(i) Return on Assets
(ii) Return on Equity
(iii) Employee Productivity
(iv) Growth in Revenue
(v) Market to book value ratio; while the independent variables were the components of Value Added Intellectual Capital
{Human Capital Efficiency (HCE), Structural Capital Efficiency (SCE) and the Capital Employed Efficiency (CEE)}. The multiple regression analysis method was adopted for the test of all the hypotheses. The SPSS statistical software (version 17.0) was used for the data analysis. There was a positive significant relationship between components of VAIC and the Return on Assets of the banks in Nigeria (VIAC coefficient = 9.02, R2c = 0.97, R2 = 0.49, P < 0.05). There was also a positive significant relationship between components of VAIC and the Return on Equity of the banks in Nigeria (VIAC coefficient = 8.15, R2 = 0.69, R2t = 0.49, P < 0.05). The study further showed that there was a positive significant relationship between components of VAIC and employee productivity of the banks in Nigeria (VIAC coefficient = 1.34, R2c = 0.98, R2 = 0.49, P < 0.05). The results also showed that there was no positive significant relationship between components of VAIC and the growth in revenue of the banks in Nigeria (VIAC coefficient = -2.37, R2c = 0.45, R2t = 0.49, P > 0.05). There was a positive relationship between the components of VAIC and market to book value ratio of the banks in Nigeria (VIAC coefficient = 3.29, R2 = 0.68, R2 = 0.49, P < 0.05). From the results stated above, it is thus established that indeed there is positive significant relationship between intellectual capital and financial performance of banks in Nigeria.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The global economy has for the past few decades witnessed gradual transition from industry based environment; with a focus on physical assets such as factories, plants, machines and equipment; to a high technology, information, and innovation based environment, which focuses on the expertise, talents, creativity, skill, dedication and experience of people in the organisation-the organisation’s intellectual capital. The fundamental difference between these two environments lies in the nature of their assets and their effect on financial performance indices. In the former, the physical assets like plants, machinery, materials, equipment, etc. are of utmost importance and make up the bulk of the organisation’s assets and value. While in the latter, knowledge, ability, skills, experience and attitude of workers, assume greater significance.
Furthermore, land, labour and capital (financial and physical) were traditionally considered to be the most valuable assets in economics and as a result, conventional physical assets were considered to be the main determinants of the performance of any economic activity (Ahangar 2011). However, the fast expansion of science, technology and finally the globalization has altered the pattern and structure of the production systems today. The new production systems are mainly driven by technology, knowledge, expertise and relations with stakeholders etc which may collectively be described as Intellectual Capital (Ahangar 2011). In the new economic system, which is popularly known as the knowledge economy, intangible or intellectual assets have been recognized as the prominent resource needed for organisational survival and growth. Companies like software, finance, pharmaceutical; banking, hotel, hospital, consulting, accounting and law firms, higher educational institutions etc. depend to a considerable extent on their intellectual capital for earning revenues. Production or manufacturing companies use Intellectual Capital with its physical assets to sharpen their competitive edge (Firer and Williams 2003). Bornemann (1999) discovers that enterprises, which have managed their intellectual capital better, had achieved stronger competitive advantage than the general enterprises. Also, he reported that companies which had strengthened their own intellectual capital management compared to the others had performed better. Brennan and Connell (2000), also agrees that intellectual capital management plays an important role on the long-term business performance of an enterprise.
Flamholtz (1999) notes that given the growing importance of human and intellectual capital to economic success at both the macroeconomic and enterprise levels, the nature of investments made by firms need to shift to reflect this reality. It is being contended among scholars that adequate investments are not being made on intellectual capital in line with its growing importance in organisations today. The recognition that organisations actually do have valuable human assets in their human capital led in 1960s to the development of the field of “Human Resource Accounting” (HRA) (Flamholtz , 1999).
Intellectual Capital (IC) can be briefly defined as the knowledge based equity of organisations and has attracted, during the last decade, a significant amount of practical interest (Campisi and Costa, 2008; Petty and Guthrie, 2000). Although the importance of Intellectual Capital (IC) is constantly increasing, many organisations face problems with its management, mostly due to measurement difficulties (Andrikopoulos, 2005; Kim et al. 2009, Nazari and Herremans, 2007). The widespread acceptance of Intellectual Capital (IC) as a source of competitive advantage led to the development of appropriate methods of its measurement, since traditional financial tools are not able to capture all of its aspects (Campisi and Costa, 2008; Nazari and Herremans, 2007).
The search for the most appropriate method of measuring Intellectual Capital, led Pulic Ante to develop the most popular method that measures the efficiency of value added by corporate intellectual ability (Value Added Intellectual Coefficient – VAIC) Pulic (1998, 2000a, 2000b). The VAIC method measures the efficiency of three types of inputs: capital employed (physical and financial), human capital, and structural capital (Firer and Williams, 2003; Montequin et al. 2006; Public 1998, 2000a, 2000b; Puntilo 2009).
Despite the shift towards human capital intensive economy, traditional accounting has continued to focus more on the physical assets in their financial statement to the exclusion of the more important assets- the Human assets (Armstrong, 2006). Fortunately, human assets belong to group of assets classified as intangible assets because they represent those innate qualities of people which cannot be seen or touched but which are indispensable for organisational successes and survival. Notwithstanding that there are accounting treatments for acquired intangible assets in the balance sheet, current financial accounting treats human resource related costs as expenses which reduce profit on the income statement only in the current accounting periods, rather than being reported as assets on the balance sheet which provide future benefits. As a consequence of the above, Management is denied of relevant and timely quantitative data, which enables her to take vital decisions regarding her human resources, especially the cost implication of certain decisions. This often results in wrong decisions or no decisions at all concerning workers especially as it affects their welfare and entitlements thereby causing industrial disharmony.
It is also common knowledge today that most reputable business organisations contract out their process of recruiting and training new employees to human resource consulting firms, usually at a fee. Even after recruiting the new workers, enormous funds are further voted for the orientation, training and retention of these workers to enhance their performance and efficiency in their organisations. Even where this process of selecting and recruiting this new staff is not contracted out, huge amount of money and time are usually expended on advertisement for the vacant positions, conducting interviews, selection and training of the newly recruited staff. Apparently the reason for the situation above is because there is the lack of monetary measurement system for human capital. Where a good and reliable system for human capital measurement is developed, organisations will no longer see the need to contract out their recruitment system. This will in turn cause a lot of financial savings for the organisations.
In this study therefore, the researcher investigates the relationship between intellectual capital, physical capital and financial performance. That is whether intellectual capital and physical capital can significantly and positively influence the financial performance of banks in Nigeria. The choice of the banking sector is because in every country, the banking sector plays a pivotal role in setting the economy in motion and in its developmental processes. Banks promote growth and success of businesses in both developed and developing countries and Nigerian banks have been noted for favouring graduates with second class honours degree (upper division) in their employment policies. Also according to Kamath (2007), the banking sector is an ideal area for intellectual capital research because the banking sector is “intellectually” intensive and its employees are (intellectually) more homogeneous than those in other economic sectors. Empirical evidence of the understanding and development of intellectual capital (IC) concepts in developing economies is still at its infant stage (Firer and Williams, 2003) and because developing economies contribute significantly to the prosperity and stability of the world economy, there is a need to empirically establish the relationship between intellectual capital and financial performance of banks in these economies.
1.2 STATEMENT OF RESEARCH PROBLEM
The global economic crisis has been so challenging that business combinations such as mergers and acquisitions have become survival strategies adopted by many ailing businesses. Investors and human resource managers often take decisions on behalf of their businesses. While investors must decide on whether to merge their business with other ailing ones or better still take them over, they often do not give adequate consideration to the intellectual capital element (human and structural) in their decision making process. Also, the human resource managers in this period of global financial crisis must decide which staff is to be laid off and which one is to be retained. Again, adequate consideration is usually not given to the intellectual capital element in that decision making process. The resultant effect of these decisions is that more problems are created as intellectual and highly talented staff may be laid off for less important ones. In the case of a merger arrangement, the chief executive officers of the combining businesses will start jostling for who would be the chief executive officer of the new business after the merger is consummated. Worthy of mention is the recent recapitalization policy of the Central Bank Nigerian (CBN), which resulted in some banks getting merged to meet the required minimum capital base of twenty- five billion naira (N25billion) and where some chief executives of the merging banks were struggling over and lobbying for who would be the boss of the combined bank.
Furthermore, human capital has also been recognized as one of the key determinants of growth today (OECD, 2001). This applies especially to modern economies such as Switzerland, United States of America, China, and Japan etc as companies with a large share of unskilled labour have moved to other countries of the world as a consequence of their comparative intellectual capital advantage (Polasek et al, 2011). Even when it has been a known fact that companies with good intellectual capital perform better, there are not many empirical studies that have investigated the impact of intellectual capital solely on the developing economies like Nigeria. Most cross- country and cross-regional studies have the problem that they are mixing developed and non-developed countries or regions (Lev and Zarowin, 1999; Badinger and Tondl 2005).
Before the year 2000, the three strongest and most popular banks in Nigeria were: the First bank of Nigeria (FBN), Union bank of Nigeria (UBN) and United Bank for Africa (UBA). Their volume of transactions as well as their assets and customer bases were very high and strong. With the emergence and introduction of modern technologies in banking, these trio were generally classified as old generation banks while the banks that immediately embraced the modern technologies, like Zenith bank Plc, Eco bank Plc, Diamond bank Plc, etc, were classified as the new generation banks. Even then, the new generation banks could only make minor impact in the economy and at the Nigeria Stock Exchange as these older banks dominated trading and other activities at the exchange. Most people then preferred to bank and carry out their transactions with these old generation banks because of these attributes. Today, the trend has been altered. While some of the old generation banks still record higher book values of their physical assets, most of the new generation banks post better and higher financial performance figures and better services than the old generation banks. People now prefer to bank with the new generation banks and consequently, the customer bases of the older banks have dropped significantly. Furthermore, even at the Nigeria Stock Exchange, the rate of stock turnover of these new generation banks as well as their market prices has consistently been higher than those of the old generation banks. An explanation to what has caused this change in trend has to be made empirically, hence this research.
Furthermore, the increasing gap observed between market value and book value of banks in Nigeria has drawn the research’s attention towards investigating the value missing from financial statements. Intellectual Capital (IC) is therefore considered to be the hidden value that escapes financial statements and the one that leads organisations to obtain a competitive advantage (Chen et al., 2005; Edvinsson and Malone, 1997; Lev and Radhakrishnan, 2003; Lev and Zarowin, 1999; Lev, 2001; Ruta, 2009; Yang and Lin, 2009). In addition, it is believed that the limitations of financial statements in precisely explaining a firm’s real value reveal the fact that, nowadays, the source of economic value is the creation of intellectual capital and no longer the production of material or physical goods (Chen et al., 2005). Although a firm’s market and book values have rarely been the same, the fact that the gap has been increasing over the past few decades has drawn wide attention for researchers to explore any invisible value unattended in the financial statements (Lev and Zaowin, 1999; Lev, 2001; Al-Ali, 2003; Lev and Radhakrishnan, 2003; Lev and Daum, 2004). Lev (2001) found that over the twenty-five year period of 1977-2001 the market to book value ratios of S&P 500 corporations increased by five times (from slightly over 1 to above 5). This implies that over 80% of corporate market value has not been reported in financial statements (Lev and Sougiannis, 1999). Edvinson and Malone (1997) explained the growing gap between market value and financial performance by stating that the source of economic value is no longer simply captured by the production value of material goods, but also by the creation and utilization of intangibles such as intellectual capital. Intellectual capital (IC) is not recognized in traditional financial statements (Lev, 2001; Cezair, 2008) and consequently denies users of financial statements, vital and crucial data for effective decision making. Malhotra (2000) also asserted that the issue of valuing and measuring IC is critical as it enables us to understand where value lies in the firm and for developing measures for assessing success and growth of the firm (Cezair, 2008). Given the significant contribution of economically emerging nations to the overall well-being and balance of the global economy, it is important to establish an understanding of the development of intellectual capital in different corporate and economic settings (Gu and Lev, 2001; Lee and Guthrie, 2010).
In addition to the above, this growing gap between the market and book values of banks have drawn broad interest into investigating ways for measuring banks’ intellectual capital to see if the capital market is efficient with intellectual capital (Chen et al, 2005). Recent studies suggest that knowledge and information lead to increasing business returns, as opposed to the decreasing returns typical of the traditional resources like physical assets (Bontis et al, 2000). This implies that nowadays, knowledge and information have become more valuable to companies than before. Having a sound knowledge base in the corporation means that in the future years, the company can start leveraging on that base to create even more knowledge, and attain competitive advantage (Arthur, 1996; Cezair, 2008). The fact that investors and financial markets attach value to the skills and expertise of CEOs and other top management can be understood by observing stock prices reaction to changes in management (Bontis, 2001). He argues that if intellectual capital does not exist in organizations then stock prices would not have reacted to actions such as changes in management, an element of intellectual capital not recognized in financial statements as assets (Lev and Zaowin, 1999; Lev, 2001; Bontis, 2001). Unfortunately, being invisible and intangible, the value of knowledge cannot be captured very well by any traditional measure—accounting or otherwise, that corporations master in their everyday operations (Rastogi, 2000; Lev and Radhakrishnan, 2003). This fact therefore questions the reliability and adequacy of traditional accounting methods used by firms in the present information age since it has failed to capture the value of knowledge and information in an employee. Intellectual capital can be an objective proxy for the value of corporate knowledge (Malhotra, 2000; Chang and Lee, 2008). Companies especially banks, require a reliable, accurate, and adequate measure of financial performance which objectively reflects the intrinsic components of intellectual capital and sufficiently demonstrates its true impact on company value at the market to narrow the gap between book and market values (Lev, 2001).
Nowadays firms face stronger competition than it was in the past and enhanced financial performance is the main objective of every business entity. Consequently, every organization wishes to increase its financial performance by adopting different approaches and strategies that can lead to enhanced financial performance. By financial performance we mean that it is the monetary measuring of the results of firm’s processes and operations e.g. returns on equity, returns on assets, returns on investments, employee productivity, market value etc. To increase the financial performance organisations normally focus on their physical assets without adequate attention on their intellectual capital but, their intellectual capital inefficiency results in a decrease in their financial performance. Consequently, the desired levels of financial performance are never achieved. Jelsis (2007) states that the benefits of managing intellectual capital are that it increases the market value of organization, it improves better communication, optimal utilization of potential, increase value creation ability, better image, it will satisfied customers, value creating human capital, motivating employees, most efficient business processes. Managing the Intellectual capital also increases the financial performance of the organization. There is therefore, the need to empirically investigate whether intellectual capital can be used by firms to enhance their competitive edge.
In addition to the issues raised above, there have been some conflicting results on the relevance and relationship between intellectual capital and organisational performance. While some studies on the relationship of intellectual capital and financial performance in some developed nations, agree that intellectual capital relates positively and significantly with organisational financial performance and as such accord organisations competitive edge over others (Bornemann 1999, Brennan and Connell 2000, Kamath 2007); others posit that there are no relationships between intellectual capital and organisational performance and that physical assets still maintain the key determinants of organisational financial performance. (Wright et al, 1995; Gottfredson, 1997; Jensen, 1998).
Apparently, the reason for the above situations appear to be because there has not been any developed monetary measurement system for intellectual capital which will reflect the actual value of a particular worker. The ugly situation arising from the distortions caused by the above situation can be avoided if a transparent system of determining intellectual capital value through a well articulated monetary measurement system can be developed. However, such monetary measurement system can only be developed if it is empirically established that there is a significant and positive relationship between intellectual capital and organisational financial performance.
1.3 OBJECTIVES OF THE STUDY
The main objective of this research is to establish the relationship between intellectual capital and financial performance of Nigeria banks. To achieve this, the study strives to achieve the following specific objectives to:
(1). Examine the relationship between the Return on Assets (ROA) and the Value Added Intellectual Coefficient indices, {i.e. Human Capital Efficiency (HCE), Structural Capital Efficiency (SCE) and Capital Employed Efficiency (CEE)} of the selected banks in Nigeria.
(2). Determine the relationship between the Return on Equity (ROE) and the Value Added Intellectual Coefficient indices, {i.e. Human Capital Efficiency (HCE), Structural Capital Efficiency (SCE) and Capital Employed Efficiency (CEE)}, of the selected banks in Nigeria.
(3). Determine the relationship between the Employee Productivity (EP) and the Value Added Intellectual Coefficient indices, {i.e. Human Capital Efficiency (HCE), Structural Capital Efficiency (SCE) and Capital Employed Efficiency (CEE)}, of the selected banks in Nigeria.
(4). Examine the relationship between the Growth in Revenue of the selected banks in Nigeria and their Value Added Intellectual Coefficient indices, {i.e. Human Capital Efficiency (HCE), Structural Capital Efficiency (SCE) and Capital Employed Efficiency (CEE)} of the selected banks in Nigeria.
(5). Determine the relationship between the Market to book Value ratio (MB) of the selected banks and the Value Added Intellectual Coefficient (VAIC) indices, (i.e. Human Capital Efficiency (HCE), Structural Capital Efficiency (SCE) and Capital Employed Efficiency (CEE), of the selected banks in Nigeria.
(6). Compare the operational variables considered in this study among the selected banks in Nigeria.
1.4 STATEMENT OF RESEARCH QUESTIONS
Drawing from the above stated problems as well as the objectives of this study, the following research questions shall guide discussions in this work.
(a) To what extent can the performance of the Value Added Intellectual Coefficient indices of a bank, have positive and significant effect on the bank’s Return on Assets (ROA)?
(b) How can the performance of the Value Added Intellectual Coefficient indices of a bank, positively and significantly affect the bank’s Return on Equity (ROE)?
(c) How can the performance of the Value Added Intellectual Coefficient indices of a bank, positively and significantly affect the Employee Productivity (log EP) of the bank?
(d) To what extent can the performance of the Value Added Intellectual Coefficient indices of a bank, have positive and significant effect on the bank’s Growth in Revenue (GR)?
(e) To what extent can the performance of the Value Added Intellectual Coefficient indices of a bank, positively and significantly affect on the bank’s market to book value ratio (MB)?
(f) How do the operational variables considered in this study differ among the banks selected for the study?
1.5 STATEMENT OF RESEARCH HYPOTHESES
In order to achieve the stated objectives and answer the research questions, and also in line with relationships and variables in the research questions, the following hypotheses have been formulated for this research. They are deliberately stated only in their normal (H0) or negative form and will serve as the fulcrum of the study:
H1: The performance of the Value Added Intellectual Coefficient indices of a bank, do not positively and significantly affect the bank’s Return on Assets (ROA).
H2: The performance of the Value Added Intellectual Coefficient indices of a bank, do not positively and significantly affect the bank’s Return on Equity (ROE).
H3: The performance of the Value Added Intellectual Coefficient indices of a bank, do not positively and significantly affect the Employee Productivity (log EP) of the bank.
H4: The performance of the Value Added Intellectual Coefficient indices of a bank, do not positively and significantly affect the bank’s Growth in Revenue (GR).
H5: The performance of the Value Added Intellectual Coefficient indices of a bank, do not positively and significantly affect the bank’s Market to book value ratio (MB).
H6: There are no significant differences among the critical intellectual capital indices of selected banks considered in this study.
1.6 SIGNIFICANCE OF THE STUDY
This research which centers on Human Resource Accounting (HRA) covers from year 2000 to 2011. It is significantly different from other studies in this area as this is the first attempt to investigate the relationship between intellectual capital and financial performance of an organisation in Nigeria. It also attempts to contribute its own quota to the efforts made by academics, accountants and social scientists in trying to establish a valid measurement system for the management and employees of an organisation since Human Resource Accounting (HRA) is defined as “the human resources identification and measurement process and also its communication to the interested parties.” (American Accounting Association, 1973).
The study will therefore be of great importance to various interest groups: individuals, human resource managers, labour unions, accounting regulatory bodies, corporate bodies, the academia, investors, financial and business analysts, the entire business world as well as the Federal Government of Nigeria and its agencies.
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.
The organised 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.
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 organisations 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 organisations in their financial reporting.
Another group of individuals that will find this research very useful are those in the academia. They include the 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.
Finally, the Federal Government of Nigeria and other human resources Managers 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 OF THE STUDY
The scope of this research is on the relationship between intellectual capitals and organisational financial performance with a focus on the Nigeria banking sector. It aimed at identifying and measuring human resources related data and thereby complimenting the role of management in providing quantitative data for effective human resource related decisions. Financial performance as measured by a number of economic indicators- profitability (Return on Equity, Return on Asset, Asset turnovers), employee productivity, and growth in revenues were be used as proxies to appraise the contributions of intellectual capitals of Nigerian banks. The study centered on all the banks listed on the Nigeria Stock Exchange. However, after a careful review of the data collected from the banks, six (6) were selected for the study. Three of the old generation banks which are: First Bank of Nigeria (FBN), Union Bank of Nigeria (UBN) and United Bank fro Africa (UBA); while the other three are among the new generation banks which include: ECO Bank Plc, Diamond Bank Plc and Zenith Bank Plc. These were the banks which had up to twelve years of data for our analysis as most of the banks were affected by the 2005 recapitalization exercise. Furthermore, they are the banks whose stocks have consistently been the most vibrant and active by volume of their turnover in the Exchange for a number of years. The period covered by the study was 2000-2011. Notwithstanding that there are so many Intellectual Capital measurement methods reviewed in the second chapter of this work, this study adopted the Value Added Intellectual Coefficient (VAIC) model since it is the most widely accepted and used measurement method as it is consistent with previous work (Chen et al., 2005; Lev and Radhakrishnan, 2003; Lev and Zarowin, 1999; Lev, 2001; Ruta, 2009; Yang and Lin, 2009; Firer and Williams 2003; Pulic 1998, 2000a, 2000b; Puntilo 2009; Kamath 2007, 2010; Ahangar 2011).
The study was limited by the unavailability of data to conduct analysis for more than six banks. Also Human Resource Accounting happens to be a new and undeveloped area of study in accounting and as such, there are very few textbooks in this subject area. The nature of this study requires that all the variables for the study are in form of ratios calculated from the annual reports and accounts of the banks as well as from stock market performances of the Nigeria Stock Exchange. Obtaining these annual reports and the stock market reports were not only very difficult but also very expensive as neither the banks nor the regulatory agencies keep these annual reports for a long period of time.
1.8 OPERATIONAL DEFINITION OF TERMS
(a). Human Capital: It includes the collective knowledge, competency, experience, skills and talents of people within an organisation. It also includes an organisation’s creative capacity and its ability to be innovative. It is gained through formal and informal education and training programmes. It is calculated mathematically as Value of salaries, wages, emoluments and other amounts spent on human resource developments and training and other human resource investments.
(b). Structural Capital: Structural capital is the supportive infrastructure for human capital. It is the capital which remains in the factory or office when the employees leave at the end of the day. It includes organisational ability, processes, data and patents. It is calculated mathematically as Value Added (VA) minus Value of Human Capital
(c). Intellectual Capital: Intellectual Capital can be defined as experience, skills and knowledge acquired by people during their lifetime and which can be used for the production of goods and services. It is also the possession of knowledge and experience, professional knowledge and skill, good relationships, and technological capacities, which when applied will give organisations competitive advantage. It includes inventions, ideas, general knowledge, design approaches, computer programs and publications. Mathematically, it is the addition of Human Capital and Structural Capital
(d). Physical Capital: This represents the value of Financial Assets and the Physical Assets like plants, machines, equipments etc employed in the process production or rendering of services.
(e). Capital Employed: This represents the value of the physical assets employed in the business.
(f). Valued Added: This is the difference between the operating incomes of a business and its operating expenses. It is calculated mathematically by deducting operating expenses (materials, maintenance, and other external costs) from operating revenues (Pulic, 1998).
(g). Human Capital Efficiency (HCE): This is an indicator of value added efficiency of human capital. It is calculated mathematically as value added (VA) divided by Value of Human Capital.
(h). Structural Capital Efficiency (SCE): This is an indicator of Value Added efficiency of structural capital. It is calculated mathematically as Value Added (VA) divided by Value of Structural Capital.
(i). Capital Employed Efficiency: This is an indicator of Value Added efficiency of capital employed. It is calculated mathematically as Value Added (VA) divided by Value of Capital employed.
(j). Human Resource Investment: The expenditure incurred for creating, increasing, and updating the human resource quality is known as the human resource Investment.
(k). Intangible Asset: An intangible asset is an identifiable non-monetary asset without physical substance held for use in the production or supply of goods or services, for rental to others, or for administrative purposes.
(l). An Asset: An asset is a resource controlled by an enterprise as a result of past events, and from which future economic benefits are expected to flow to the enterprise.
(m).The Value Added Intellectual Coefficient (VAIC): This method identifies three components of organisational resource which determine the performance of those organisations. These components are the physical capital employed the intellectual capital which is broken down into human capital and structural capital of the organisation.
This material content is developed to serve as a GUIDE for students to conduct academic research
RELATIONSHIP BETWEEN INTELLECTUAL CAPITAL AND FINANCIAL PERFORMANCE IN THE NIGERIA BANKING SECTOR
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