Impact of Expenditure on Human Capital and Human Capital Accounting On Firms’ Financial Performance in Sri Lanka

H. L. D. J. Chathurika, R. T. V. De Silva


This study conducted with the purpose of investigating the impact of expenditure on human capital and human capital accounting on financial performance of Sri Lankan Listed companies. This study employs panel data over five years from 2011 to 2015 of fourty listed companies across all sectors in the Colombo Stock Exchange Sri Lanka. Financial performance was measured through Return on Equity and Return on Assets. Aggregated expenditure on human capital was determined using all employee related financial information published in annual reports. An index was developed using disclosures on human capital accounting. Panel regression was applied using STATA v.13 in order to analyze the data. Expenditure on human capital significantly influences on firm's financial performance and the relationship is found to be positive. However human capital accounting disclosure level does not significantly influence towards the financial performance. The finding of the research implies that spending more on human capital of the organization improves the financial performance. Thus spending on human resources is no longer a burden to the firm's financial performance. Further research by extending the sample and time period under analysis may improve the generalizability. To the authors' best of knowledge, there are dearth of researches on human capital expenditures and reporting in Sri Lankan country context.


Human capital, Expenditure on human capital, Human capital accounting disclosures, Sri Lanka

Full Text:



Ahangan, R., 2011. The relationship between intellectual capital and financial performance An empirical investigation in an Iranian company. African Journal of Business Management, 5(1), pp. 88-95.

Alan K. M. A., Altman Y., & Roussel J., 2008. Employee Training Needs and Perceived Value of Training in the Pearl River Delta of China:A Human Capital DevelopmentApproach. Journal of European Industrial Training, 32(1), pp. 19-31.

Baker Aledwan, 2012. The impact of basic components of intellectual capital on the profitability of Jordanian manufacturing companies. European Scientific Journal, 28(10), pp. 1857-1881.

Becker, G., 1976. The Economic Approach to Human Behaviour. Chicago: University of Chicago Press.

Boedker, C., Mouristan, J., & Guthrie, J., 2008. Enhanced business reporting: internationaltrends and possible policy directions. Journal of Human Resource Costing & Accounting, 12(1), pp. 10- 15.

Bontis, N., Keow, W.C. & Richardson, S., 2000. Intellectual capital and business performance in Malaysian industries. Journal of Intellectual Capital.

Bunjongjit Rompho.,Sununta Siengthai., 2012. Integrated performance measurement system for firm’s human capital building. Journal of Intellectual Capital, 13(4).

Davenport, T., 1999. What it is and why people invest in it. 36 ed. Sanfrancisco: Jossey-Bas.

Dissanayake, D., 2012. Microfinance Profitability Determinants, Kelaniya, Sri Lanka: LAP LAMBERT Academic Publishing.

Enofe, A., Mgbame, D. C., Otuya, S. & Ovie, C., 2013. Human Resources Accounting Disclosures in Nigeria Quoted Firms. Research Journal of Finance and Accounting, 4(13).

Enofe, D. A., Dr. C. Mgbame, Sunday Otuya & Christopher Ovie, 2013. Human Resources Accounting Disclosures in Nigeria Quoted Firms. Research Journal of Finance and Accounting, 4(No.13).

FASB, 2001. Improving business reporting: Insights unto enhancing voluntary disclosures.

[Online] Available at: where=117

[Accessed 15 12 2016].

Firer, S. & Williams, S.M., 2003. Intellectual capital and traditional measures of corporate performance... Journal of Intellectual Capital.

Flamholtz, E., 1985. Human Resource Accounting.

Frank, R. & Bernanke, B., 2007. Principles of Microeconomics. Issue 3.

Hendricks, 1976. The impact of human resource accounting information on stock investment decisions: An. The accounting review.

Hitt,M.A.,Biermant, L., Shimizu,K., Rahul K., 2001. Direct and Moderating Effects of Human Capital on Strategy and Performance in Professional Service Firms: A Resource-Based Perspective. Academy of Management Journal, Volume 44.

Hoque, A. M., 2010. Articlesbase Ltd. [Online]

Available at: treatment-of-hra-2773625.html#ixzz0slTOiYui


Ifurueze Meshack S, Odesa Jeff O & Ifurueze P. C, 2014. Impact of Aggregated Cost of Human Resources on Profitability: An Empirical Study. Journal of Business & Management, Volume 3(Issue 2), pp. 30-43.

Indra Abeysekera, .., 2007. Intellectual capital reporting between a developing. Journal of Intellectual Capital, Volume 8(2), pp. 329-345..

Ismaila, Y., 2013. The relationship between Human Capital Efficiency and Financial Performance: An Empirical Investigation of Quoted Nigerian Banks. Research Journal of Finance and Accounting, 4(4), pp. 125-160.

Kiker, B., 2016. Litigation Analytics, Inc. [Online]

Available at:

Kirfi, M. & Adbullahi, A, 2012. Human Capital Accounting: Assessing Possibilities for Domestication of Practice in Nigeria. Research Journal of Finance and Accounting, 3(10), pp. 57-63.

Kothari, S., 2001. Capital markets research in accounting.. Journal of Accounting and Economics, pp. 105-111.

Kwon, D., 2010. Human capital and its measurement. Statistics, Knowledge and policy"., pp. 27- 30.

M. Marimuthu,.l. Arokiasamy,.m. Ismail., 2009. Human capital development and its impact on firm performance: evidence from developmental economics.. The Journal of International Social Research, Volume 10, pp. 254-265.

Micah, L., Ofurum, C.O, & Ihendinihu,J.U, 2012. Firms Financial Performance and Human Resource Accounting Disclosure in Nigeria. International Journal of Business and Management, 7(14), pp. 67-75.

Miles & Huberman, 1994. Conceptual framework. SAGE.

Ofurum, C. O. & Ihendinihu, J. U., 2012. Firms Financial Performance and Human Resource Accounting Disclosure. 7(4).

Ofurum, C. O. & Ihendinihu, J. U., 2012. Firms Financial Performance and Human Resource Accounting Disclosure in Nigeria. International Journal of Business and Management, 7(4).

Okpala, P. & Chidi O.C, 2010. Human Capital Accounting and its Relevance to Stock Investment Decisions in Nigeria. European Journal of Economics, Finance and Administrative Sciences, 4(5), pp. 256-280.

Olowolaju, P. S., 2016. Effect of Human Capital Expenditure on the Profitability of Quoted Manufacturing Companies in Nigeria. Asian Journal of Finance & Accounting, 8(2).

P.J, R. & Loomis R.S., 2007. A New View of Institutions, Human Capital and Market Standardization. Education, Knowledge & Economy, 5(10), pp. 93-105.

Passard C. Dean,.Kaitlin McKenna,.Vyas Krishnan,., 2012. Accounting for Human Capital: Is the Balance Sheet Missing Something?. International Journal of Business and Social Science, 3(Special Issue – June 2012), pp. 60-62.

Rosen, H., 1999. Public Finance. New York: Mcgraw-Hill.

Salman R.T. & Tayib, M, 2012. Intellectual capital measurement tools. International Journal on Social Science, Economic and Art, 2(2), pp. 19-26.

Schultz, T., 1961. Investment in Human Capital. American Economic Review, Volume 51, pp. 1- 17.

Shrader R. & Siegal D.S., 2007. Assessing the relationship between human capital and firm performance Evidence from technology-based new ventures. Entreprenuership Theory and Practice, pp. 893-908.

Stiles, D. P. & Kulvisaechana, S., 2011. Tammasat Bussinee school.. [Online]

Available at: [Accessed 21 12 2016].

Sveiby, K.-E., 2004. Methods of measuring intangible assets. [Online] Available at:

Sveiby, K. E., 1997. The new organizational wealth.. San Francisco: Berrett-Koehler.

Syed, A., 2009. Human resource accounting disclosure of Bangladeshi companies and its association with corporate characteristics. BRAC University Journal, 1(1), pp. 35-43.

Tseng, C. & Goo, Y. J., 2005. Intellectual Capital and Corporate value in an emerging economy: Theoretical Studies of Taiwanese manufacturers. R & D management, 35(2), pp. 187-201.

W.S., C. & Hseih, J.J., 2011. Intellectual capital a missing link?. International Journal of Business and Management, 6(2), pp. 3-12.

Wagner, C., 2007. Valuing a company’s innovators. The Futurist, 41(5), p. 7.

Williams, S., 2001. Is Intellectual Capital Performance and Disclosure Practices related?

Journal of Intellectual Capital, 2(3), pp. 192-200.


  • There are currently no refbacks.

Creative Commons License
This work is licensed under a Creative Commons Attribution 3.0 License.