Academic journal article Academy of Accounting and Financial Studies Journal

The Effect of Human Capital Disclosures on the Financial Performance in the Lebanese Commercial Banks

Academic journal article Academy of Accounting and Financial Studies Journal

The Effect of Human Capital Disclosures on the Financial Performance in the Lebanese Commercial Banks

Article excerpt

INTRODUCTION

Nowadays the business environment and the system structure of many service companies have been altered due to the evolution of economy and globalization. Recent years has witness a big change in interest of companies. Organizations have become more concerned in emerging and developing intangibles as knowledge, level of education, employee competence which is form of intellectual capital(IC). IC is categorized in to three major components : human capital (HC), structural capital, and relational capital (Edvinsson & Malone, 1997; Roos et al., 1997; Stewart, 1997; Bontis et al., 2000). HC is the core focus of this research.

It's substantially important to invest in HC through improving the knowledge, experience, professional skills of the employees, increasing the enterprise process, employee's relationships in order to improve the organization performance. Therefore, it's important to disclose more information concerning the employees that affect the financial performance in order to attract more anticipated stakeholders which is the one of the main role of disclosing financial information (FASB, 2001; IASB, 2000).

In Lebanon, the banking sector compromises in general a perfect area for HC research. It is an ideal sector for research on HC because its business nature is "intellectually" concentrated, and the whole employees are more homogenous than in other economic sectors. Banks use a massive extent of HC indicators for their presence and consider that people are its crucial and essential asset (Kubo & Saka, 2002; Firer, 2003; Mavridis, 2004; Kamath, 2007; Bruggen et al, 2009, Muhammad and Ismail, 2009; Bassey & Arzizeh, 2012).

HC is considered as the crucial factor in improving the financial performance of enterprises. It becomes significantly essential for the development of banks performance. Therefore, banks have become concerned in emerging and developing HC. (Ahuja & Ahuja, 2012; Kamath, 2007; Goh, 2005).

Most of the studies found that a positive significant relationship exists between company's financial performance and HC disclosure. Although the lack of studies concerning HC disclosures in banks and its effect on the financial performance but most of these studies find a positive significant relationship. Consequently, the study research question is:

"Does the financial performance of the LCB is positively affected by the disclosure of HC?"

Therefore, the study main objectives are to explore the extent of HC disclosure and to examine the nature and the type of the relationship between HC disclosure and the financial performance of the LCB.

The rest of this article is structured as follows: The second section present the prior studies concerning the nature and the main indicators of HC to create its index and studies that focuses on the relationship between HC disclosure and the financial performance in order to develop the hypothesis. The next section presents the research design and identifies the methods used. The fourth Section discusses the data analysis and results. The final section summarizes the findings.

LITERATURE REVIEW

Human Capital Disclosure

Most IC frameworks tend to categorize IC into three main elements: human capital (HC), relational capital, structural capital. HC is considered as the most principal element of IC in the literature review, the most essential, important and largest intangible asset in companies (Gharoie, 2011) that is consist of group of employee knowledge, know-how, innovation, competencies, creativity, skills, experiences, expertise of the entire employees of the company and managers, in addition to training, education and relations. (Sveiby, 1997; Roos et al, 1997; Stewart, 1997; Edvinson & Malone, 1997; Sveiby, 1997; Petty & Guthrie, 2000; Mei-Chun Chen, 2001; Kym &Moon, 2006; Huang et al., 2007; Bhasin, 2011; Neysi et al., 2012).

Some studies recognize HC as what employee owned as experience, skills, knowledge, competencies in other word the knowledge store in the company signified by its employees (Fitzenz, 2002; Magrassi, 2002). …

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