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