HUMAN RESOURCE DISCLOSURE: A STUDY OF THE … · MSB Siddiq, Tun Abdul Razak University, Malaysia...

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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

COPY RIGHT © 2012 Institute of Interdisciplinary Business Research

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HUMAN RESOURCE DISCLOSURE: A STUDY OF THE

PERCEPTIONS OF STAKEHOLDERS IN MALAYSIA

Lee Miin Huui, Swinburne University of Technology, Sarawak Campus, Malaysia

MSB Siddiq, Tun Abdul Razak University, Malaysia

Abstract

The purpose of this research paper is to identify the awareness of the concept of human resource

disclosure among the stakeholders of the companies. This research study also investigated the

impact factors, obstacles and motivators on the development of the concept of human resource

disclosure in the Malaysian context. The study also further analyzes the correlations of five

different variables to the level of awareness of human resource among the respondent and test

was carried out to test the hypotheses established based on different variables.

Keywords: HUMAN RESOURCE DISCLOSURE; STUDY ; PERCEPTIONS ;

STAKEHOLDERS ; MALAYSIA

1. Introduction

There is growing evidence that the quality of human resource is an important factor in a

business’s competitive advantage. With the movement of economy to a service based economy

for example the consulting firms, investment and banking, Information technology services, etc.

knowledge is the key differentiator. Knowledge is also increasingly important in manufacturing

companies for example pharmaceutical, electronic and machinery manufacturing, new

technology household equipments, etc. However, as the highly recognized important factor in

businesses, the value of human resource is still not recognized in the book of account and very

few companies are believed to offer significant human resource information to shareholders in

their annual reports.

In Malaysia, for the last three decade has transformed itself from a country that depended on

agricultural commodities and mining to an industry-based economy. Statistics from the

Department of Statistics showed that in 2005, the manufacturing and services industries

accounted for 32 percent and 57 percent of Malaysia’s GDP respectively. Malaysia also

embarked on a mission to develop a knowledge-based society as highlighted in its Third Outline

Perspective Plan , 2001- 2010 ( Economic Planning Unit, 2002) and a Knowledge-Based

Economy Master Plan which was launched in 2002. This plan consists of various strategies to

accelerate the transformation of Malaysia into a knowledge-based economy. Immediate to this

vibrant transformation, modern business companies in Malaysia will no longer solely rely on

investment in tangible asset but also in intangible asset such as human resource to create wealth

for shareholders.

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To date, research has been carried out by researchers and practitioners in Scandinavia, Australia,

Canada and Europe. However, in Asia, there is still a lack of research in this area. With the

emergence of knowledge-based innovation economy, whereby knowledge workers have become

an important resource for modern business firms; it is important to record such resource to reflect

the “true and fair view” of the companies’ financial position. Literature search points to the

limited research on Human resource disclosure in Malaysia. This research study was carried out

in Malaysia in an attempt to fill this gap.

The evolvement of the concept of recording human value in an annual report greatly depends on

the acceptance of the concept among all the stakeholders. That requires awareness among the

users and the providers on the benefits and significance of the concept of Human resource

disclosure.

Bearing these in mind and employing initial three stages of the framework developed by

Johanson and Nilson (2006), this research aimed firstly to find out the awareness and the

perceptions of this concept among the companies in Malaysia, and secondly, to identify the

current measurement practices of the disclosure of human resource value in an annual reports of

companies in order to gauge the awareness of human resource disclosure in Malaysia. The

research also attempted to explain the current practices of the reporting of human resource by

analyzing the perceptions of stakeholders on the importance of human resource disclosure in the

annual report.

2. Literature Review

Development of the Concept of Human Resource Disclosure (Financial Aspect)

Human Resource Accounting is a concept that has been on the research agenda for more than 40

years. The development of Human Resource Accounting as a field demonstrates high interest in

valuing the contribution of employees and improving human resource management. The other

reason could be due to the inadequacy of traditional balance sheets in providing sufficient

information on enterprise performance. The history of the development of human resource

accounting suggests that Human Resource Accounting is now experiencing some kind of revival.

(Grojer and Johanson 1998).

According to Flamholtz, Bullen, and Hua (2002), as illustrated in Table 2.1, Human Resource

Accounting has been emerged and developed through five stages.

Table 2.1: Development of Human Resource Accounting

Stages Years Development

1 1960 to 1966 The concept of Human Resource Accounting was derived.

2 1967 to 1970 Research was conducted to form measurement models.

3 1971 to 1977 Research interest in the field grew.

4 1978 to 1980 Research interest in the field declined.

5 1981 to present Show of a worldwide revival of the concept.

Adapted from: Flamholtz, Bullen and Hua (2002)

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Roslender (1997) claimed that the traditional accounting and financial reporting became less

useful when the major part of the global economy transited into knowledge-based economy. The

emphasis on Human Resource Accounting, according to Sloman (1999), was due to the

globalization of competition where completing through cost and product would not be enough.

For many companies, future profitability lies in the skills and capabilities of employees, and as a

result the development and investing in human resource become a new source of competitive

advantage.

Some research findings came up with reasons why Human Resource Accounting has become

more popular as compared to a decade ago. Cascio (1998), Boudreau (1998), Mayo (2000),

Johanson and Larsen (2000), Roslender (1997) proposed the changing structure of companies,

the importance of communication and the impact of technology, the need for continuous learning

and the emergence of the knowledge worker as the driving force while Flamholtz and Main

(1999) proposed that with the changing nature of management, where managers increasingly

become “facilitators” of knowledge intensive companies, the most valuable assets for companies

became the human resource and intellectual capital. In addition to growing significance of

human resource management in most companies, it was believed that the management of people

is now a key element in the strategic planning of a company. (Roslender, R. & Dyson, J.R.

1992).

Importance of Human Resource Disclosure

Various research carried out substantiated the importance of human resource disclosure. Human

Resource Accounting provides quantitative information about the value of human assets and

other non financial human resource information has been proved to be useful in making

decisions internally and externally.

Toulson and Dewe P. (2004) revealed that measuring human resource is perceived as important

firstly because the measurement reflects the strategic and competitive importance of human

resources, and secondly, because in order to earn credibility of a company, human resource must

be expressed in financial terms.

John, Edward & Gary (2001) stated that this disclosure was first developed to help management

to make decision. The two most prominent classes of decision makers who are most likely to use

the accounting information are the investor in securities (external) and managers making

resource allocation decision within the firm (internal). The investors can benefit from human

resource data as they reflect the current state of business organization and their growth

possibilities. On the other hand, this can inform managers on the cost of specific personnel

behaviors, such as training and turnover, thus encouraging better assessment and development of

people.

Failure to measure and report the value of human resource, however, may cause managers to

ignore the impact of their decision on employees (Lawler 2001). According to Lawler (2001),

managers may make decisions which in effect liquidate a company human resource by

suspending the human resource investment in order to increase the short term profit while the

organization will definitely suffer in the long run.

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James, Henry and Gertrude (1997) indicated a few benefits of recording human resource. As the

world is moving into the service economy, whereby humans have become the key element,

failure to measure their value and account for human cost will reduce the effectiveness of the

organization. Capitalizing human resource would assist in restoring individual relationships

between management and the employees in a complex organization. If a manager realizes there

are future benefits, he or she may spend more time developing employees. Human Resource

Accounting provides quantitative information about the value of human assets and this data

would also enable managers to identify the investment of human resource and the job

requirement of employees, to make appropriate decisions and to evaluate the management’s

utilization of human resources. Human Resource Accounting would also attempt to assess the

appreciation of an employee who perform well and would otherwise go unrecognized.

While human resource disclosure internally helps the top management make decisions regarding

the adequacy of human resources, it has an impact on the decisions of the investors, clients and

potential staff of the organization. Without proper valuation and accounting of human resources,

the management might not be able to recognize the negative effects of certain programmes,

aimed at improving profit in the short run. If not recognized on time, this might lead to the fall in

productivity levels, high turnover rate and low morale among existing employees

(http://www.galintranet, godrej.com/tmm/kzone/).

Ulrich, Geller, & Desouza, G (1984) called attention to the positive correlation between human

resource disclosure practices and business performance. It was supported by Yeung and Ulrich

(1990), confirming that the manner of alignment between human resource and business strategy

has an impact on organizational performance.

Research evidence by companies, and examined selected high performing companies, both

showed that financial outcomes of human resource investment has significant positive

correlation between an increase in the companies competence share and added value. Research

carried out in the United States and United Kingdom with selected listed companies showed

similar results which further confirmed that human resource measurement and reporting can lead

to improved profitability and competitiveness of a company

3. Research Objectives

Phase one of this study investigated the stakeholders’ perceptions of human resource reporting,

the impact factors and motives for providing human resource disclosure in annual reports. The

second phase of this study explored existing differences in perceptions and practices of the

companies in Malaysia in terms of types of industry. Data collected from questionnaire were also

analyzed to identify the awareness of the concept which may or may not be related to the

following variables: Size of the organization, Types of industry, Listing status, Mission

statement and Financial Performance. Further analysis was also carried out to test the following

five hypotheses:

H1: Large companies with various stakeholder groups are more likely to be aware of the concept

of human resource disclosure.

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H2: Companies with high level of employees’ concentration (service industry) are more likely to

be aware of the concept of human resource disclosure as compared to companies with low-level

employees’ concentration (manufacturing industry and others).

H3: Foreign listing companies are more likely to be aware of the concept of human resource

disclosure as compared to those which are not.

H4: Companies which indicate staff development and staff welfare in their vision and mission

statement are more likely to provide human resource value in their annual report as compared to

those which do not.

H5: Companies with better financial performance are more likely to be aware of the concept of

human resource disclosure.

4. Research Methodology

Based on the research objectives, this descriptive and explanatory research analyzed quantitative

and qualitative data by using SPSS and Multiple Regression Model to identify the acceptance

and importance perceived by the stakeholders, the possible obstacles, motivators and the impact

factors of the disclosure of human resource motivations behind human resource disclosure, the

differences in perceptions of the stakeholders in human resource disclosure in annual report for

companies from different types of industries and identify the correlation relationship and the

testing of hypotheses.

4.1 Development of the Hypotheses

Firm size

One of the theoretical frameworks that support a positive relationship between firm sizes and

disclosure is Legitimacy Theory. Legitimate Theory is defined as:

“A generalized perception or assumption that the actions of any entity are desirable, proper , or

appropriate within some socially constructed system of norms, values, beliefs and definitions”,

Suchman (1995).

The theory implies that given a growth in community awareness and concern, companies will

take measures to ensure their activities and performances are acceptable to the community. The

annual report may reinforce the community’s perception of management’s responsiveness to

issue such as environmental, social and other issues, which could include human resource.

Examples of the firm size proxies, including sales revenue, number of staff, market

capitalization, have all been tested. Based on these, this study hypothesized that:

H1: Large companies with various stakeholder groups are more likely to be aware of the concept

of human resource disclosure.

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Industry Type

It is observed in the previous studies that industry type is associated with the level of disclosure

in their companies’ annual report. According to Cowen et al. (1987), industry type is related to

certain types of social responsibility disclosure. The companies tend to provide information

which is in line with the unique nature of their industry sector. For example: labor intensive

industries are expected to be more aware of the human resource in the companies and to provide

more information about their employees; chemical industries are likely to provide more

information on environment; and service industry and to exhibit more brand information to

enhance their corporate image. Based on these, this study hypothesized that:

H2: Companies with high level of employees’ concentration (service industry) is more likely to

be aware of the concept of human resource disclosure as compared to companies with low-level

employees’ concentration (manufacturing industry and others).

Listing Status

According to Haniffa and Cooke (2005), stakeholders in foreign countries have more diverse

interest, awareness and power and therefore exert different pressures on organization to disclose

more information as in disclosure of information on social responsibilities. Companies which are

not listed in the foreign stock market, however, may not engage in voluntary disclosure practices

in the absence of regulations and rules. As for foreign market listed companies, they will respond

to the pressure of various interest groups and voluntarily disclose more information in order to

realize the potential benefits that the disclosure of extra information could bring (Hope, 2003).

Based on these, this study hypothesized that:

H3: Companies, which are foreign listing companies, are more likely to be aware of the concept

of human resource disclosure as compared to those companies which are not.

Disclosure of Human Resource in Mission Statement

Hypothesis 4 is concerned with the disclosure of human resource in the mission statement. It is

proposed that companies with an emphasis on human resource in their mission statement are

more likely to have higher level of human resource disclosure in the annual report. In order to

achieve the mission of the companies, the management is geared towards the recording of the

value of human resource and therefore more aware of the concept of human resource disclosure.

For the purpose of this study, it was hypothesized that:

H4: Companies with staff development and staff welfare in their vision and mission statement

are more likely to be aware of the concept of human resource disclosure as compared to those

that do not.

Financial Performance

Theoretically, the investors generally perceive the absence of any voluntary disclosure as an

indication of the reports not being transparent and reliable. This provides average or better

performing firms with an adverse selection incentive to disclosure (Verrecchia, 1983). Prior

empirical evidence shows that better performing companies have greater incentive to disclose

more information in their annual reports and more aware of various disclosure of information in

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annual report as to avoid signaling the information of hiding some unfavorable information to the

users (Skininner, 1994).

For the purpose of this study, it was hypothesized that:

H5: Companies with better financial performance are more likely to be aware of human resource

disclosure concept.

4.2 Data Collection Procedure

This study utilized mainly the primary data. Questionnaires were used as the data collection

procedures for this research study. Questionnaires are able to provide a quantitative or numeric

description of trend, attitudes or opinions of a population with the ability to accommodate large

sample sizes thereby reflecting a more realistic situation of the topic of research study. In this

study, a web-based self-administered questionnaire was ratified to be appropriate methods to use

to gather the primary data.

4.3 Target Respondents to the Questionnaire

The questionnaires were sent to the following stakeholders of companies using emails and

normal postal mails. Stakeholders are “any individual upon whom organizational actions impact,

either directly or indirectly” in an economic, environmental and/or social manner. (Unerman &

Bennett, 2004)

For this research study, data had been collected from the following stakeholder groups:

i. Employees: Top Executive / Accountant/ Human Resource managers of companies listed in

the main board and second board of BURSA Malaysia, as the objective was to learn from

experiences of companies of significant economic size.

ii. Regulatory Authorities: Members of Professional Bodies in Malaysia to seek professional

views on the subject:

a. Malaysian Institute of Accountants (MIA)

b. Association of Certified Chartered Accountants (ACCA)

c. Certified Public Accountants (CPA)

d. Chartered Institute of Management Accountants (CIMA)

e. Malaysia Institute of Corporate Governance (MICG)

iii. Other main stakeholders of companies from small, medium and large size companies:

a. Investors

b. Customers

c. Local Communities

iv. The Government

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4.4 Determinant of the Sample Size for Questionnaire

In this phase of study, a stratified sample was adopted. With the nature of the stratified sample,

the sample of this study was divided into three groups.

Sample Size Calculator was used to determine how many samples are needed in a questionnaire

to get results that reflect the target population as precisely as needed. (Creative Research

Systems- http://www.surveysystem.com/)

Different confidence interval and level were applied to the different group of the sample in this

research study. According to Creative Research Systems, confidence level is expressed as a

percentage and represents how often the true percentage of the population who would pick an

answer lies within the confidence interval. Most researchers use the 95% confidence level.

4.5 Random Sampling of Questionnaires

In this study, stratified random sample method was used to select the respondents to the

questionnaire. A stratified sample was obtained by independently selecting a separate simple

random sample from each population stratum. A population can be divided into different groups

based on some characteristic or variable. (Webster, 1985).

Method of random sampling was used in this phase of study. A simple random sample is

obtained by choosing elementary units in such a way that each unit in the population has an

equal chance of being selected. A simple random sample is free from sampling bias (Webster,

1985).

For each group of sample, a name list was used to randomly select the sample:

Group 1: List of companies’ listed on BURSA main board and second board downloaded from

BURSA website.

Group 2: Name list of accountants listed on MIA, ACCA, CPA, CIMA websites.

Group 3: Name list from:

i. Directory of manufacturing companies in Malaysia

ii. Directory of Government Agencies

iii. Directory of Churches Association

iv. Directory of Institute of Engineer Malaysia

v. Directory for member of Malaysian Chamber of Commerce

Each name in the list stated above was converted into Excel format numbered sequentially using

alphabetical order. Depending on the sample size required for each group, the numbers were

randomly picked using SPSS analysis package.

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4.6 Reliability and Validity of Questionnaire-Pilot Test

Cronbach’s coefficient alpha was used to test the reliability of the questionnaire.

According to Robson (1993), there is no agreement over the minimum acceptable standard for

scale reliability compute by Cronbach Alpha, but 0.80 has been suggest as the general rule that

the correlations are attenuated very little by random measurement error. In this study, alpha of

0.8 was used as the minimum acceptable standard to measure the reliability of the questionnaire.

34 samples collected as pilot test were analyzed. The results of the Cronbach Alpha for the

questionnaire in this study shows a 0.826 reliability scale, which is above the minimum

acceptable standard of 0.80. This indicates an acceptable degree of internal consistency among

the items on the scale.

4.7 Information on the Respondents and Response Rate

From a total of sample size of 1509 as determined for this research study, 470 responses were

received and 371 responses were usable constituting 82 % of estimated response of 453. Of the

371 replies that were received, 52.8% of the respondents were male and 47.2% were female. In

terms of qualification, 57.7% of the respondents had the qualification of degree level or higher

and 27.8% held a professional qualification. 79.78% of the respondents had more than 5 years

working experience. Senior managers or executive managers comprised 72.24% of the

respondents. High percentage of the respondent came from trading and service industry followed

by finance, 13.7% and 0.5% of the 371 companies listed on the main board and second board

respectively. 78% of the companies were local holding. Table 4.0 showing the breakdown of the

response rate of the respective respondents groups.

Table 4.0 Breakdown of the response rate of the respective groups:

Samples Questionnaire Sent Response

Received

Response Rate Useable Data

Group 1 309 60 19.42% 54

Group 2 600 215 35.83% 152

Group 3 600 195 32.50% 237

Total 1509 470 31.15% 371

According to Owen and Jones (1994), recorded response rate of approximately 30% is

reasonable. Considering the factors listed above, the confidence level and confidence interval of

sample size needed the estimated percentage of reasonable response rate of approximately 30%

(Owen and Jones, 1994), the estimated respondents for each phase of study would be:

Group one: 309 samples x 30% = 92.7 respondents

Group two: 600 samples x 30% = 180 respondents

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Group three: 600 samples x 30% = 180 respondents

Total estimated respondents for the questionnaire 453 respondents.

5. Findings of the Study

Phase One of the Study

This section reports the findings of the questionnaires on the stakeholders’ perceptions on

Human resource disclosure.

5.1 General Perceptions on Accounting and Human Resource Disclosure

Information illustrated in Table 5.1, Table 5.2 and Table 5.3 that could be found in Appendix

show the detailed analysis of the response on most important current, tangible and intangible

assets in the organisation. Findings shows that 61.2% (227 out of 371 respondents) felt that the

most important current asset in the organisations was cash and equivalent, followed by short and

long term investment (12.1% of respondents). Only a small number of respondents stated

account receivable, inventories and prepaid expenses. Another interesting finding is that 35 out

of the 43 respondents who selected “Others” mentioned that human resource was the most

important current asset in the organisations.

Concerning the question on most important tangible and intangible assets of the organisations,

34% of the respondents stated that land appeared to be the most important tangible asset in the

organisations followed by building with 27.2% respondents. Goodwill on the other hand was

stated (55%) as the most important intangible asset to the organisations.

76.3% out of 371 respondents indicated that the traditional balance sheet failed to provide

sufficient information. 74.1% of the respondents also stated that their organisation did not have

any mechanism in valuing human resource. See Table 5.4 and Table 5.5 for the details analysis.

Respondents were asked to indicate the needs of standard format to record human value and the

type of model that the companies should adopt. 55.5% of the respondents stated that human

resource should be recorded using a standard format. In response to the question of the model

that the companies should adapt to disclosure human resource in the annual report, the results

indicate that 92.5% (343 out of 371) of respondents indicated that they were not sure with the

model that the organisations should adopt. Only 10 respondents (2.7%) indicated that the

companies should adopt historical model in recording human resource disclosure. This finding

shows the limited knowledge of the model of recording human resource among the respondents.

Table 5.6 and Table 5.7 that could be found in Appendix show the detailed analysis of the

standard format and model of recording human resource.

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5.2 The Awareness of the Concept of Human Resource Disclosure

One of the reasons why the slow development of the concept of human resource disclosure was,

according to the respondents, the unawareness of the concept. Analysis was conducted using

SPSS to identify the awareness of the concept.

The findings show that 55.3% of the respondents heard about the concept. 80.9% of the

respondents indicated that human resource value should be accounted for as asset in the balance

sheet. This finding support the literature discussed that in the era of knowledge-based economy,

human resource disclosure, knowledge accounting, measurement of intellectual capital are

important tools for management. Human resource is considered not as overheads but as assets, as

it is the employees and not the outdated buildings and production equipment, which will carry

the enterprise into the future.

Table 5.8 that could be found in Appendix showing the detailed analysis of the respondents’

response to the above two questions.

5.3 The Importance of Measuring Human Resource

In this section, respondents were asked to show how important the valuation of human resources

was to their organization; why this valuation was considered important; to whom the valuation

was important and who should initiate human resource disclosures.

83% of respondents stated that the measuring of human resources was important, very important

or extremely important in their companies. The rest, 14.6% of the respondents, stated that the

measurement of human resource was somewhat important or not important. 2.4% of the

respondents skipped this question in the questionnaire. Table 5.10 that could be found in

Appendix shows the detailed analysis of the question of the importance of human resource

disclosure.

Further analysis was conducted where respondents were given a list of eight statements about the

importance of measuring human resource (for detailed analysis, refer to Table 5.11 that could be

found in Appendix). They were asked to consider each statement and to indicate on a five point

scale how strongly they agreed with the statements. The four most important reasons for

measuring human resource as indicated under the scale of extremely important are given below,

following the sequence of high count to low:

i. The knowledge and skills of people are the most important source of sustained competitive

advantage.

ii. Measurement of the knowledge and skills of employees is an important indicator of future

profitability.

iii. Understanding the value of the people in the organization would help in both setting and

achieve the long term strategies of future human resource needs.

iv. Measuring of human resource will help with strategic planning.

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The analysis indicates that the knowledge and skills of people are the most important source of

sustained competitive advantage. As human resource was identified as important source of

sustained competitive advantages to companies, it was expected that the recording of human

resource would help strategic planning and decision making.

Analysis was also carried out to identify the overall reasons for measuring human by looking

into the counts under the scale of important, very important and extremely important as shown in

Table 5.12 that could be found in Appendix. The results show that the following are the

important reasons (which follow the sequence of high count to low) that the respondents perceive

to measure human resource:

i. The knowledge and skills of people are the most important source of sustained competitive

advantage.

ii. Understanding the value of people in the organization would help in both setting and achieve

the long term strategies of future human resource needs.

iii. Measurement would allow people to be seen as an investment to be developed rather than an

expense to be trimmed.

iv. Measurement of the knowledge and skills of employees is an important indicator of future

profitability.

There are few interesting notes by the respondents with regards to the importance of human

recording to a company:

i. The maintenance of detailed record relating to human resource improves managerial decision-

making especially on decisions such as direct recruitment versus promotions; transfer versus

retention, retrenchment or relieving versus retention.

ii. A proper recording of human resource will help to interpret the Return of Human Capital

employed by an organisation. A more reliable valuation of Return on Human Capital employed

by an organisation would give a long-term perspective of a business performance.

iii. Human resource disclosure might increase the productivity as a monetary value is attached to

it. Human talents, devotion and skill are considered as valuable assets and are allotted a place

in the financial statements of the organization. These actions would boost the morale, loyalty

and initiative of the employees, creating in their mind, a sense of belonging towards the

organization and would act as a great incentive, giving rise to increased productivity.

From the analysis (illustrated in Table 5.13 that could be found in Appendix) of the importance

of human resource disclosure to the stakeholders, the finding shows that employee is the group

of stakeholder which has the highest count. The extra notes of the respondents also show their

feeling that human resource disclosure is important to employees as it will give opportunity to

the employees to reveal the gaps in skills and competence levels, clarify their roles in the

organisation as knowledge asset and to assist the employees in planning for their career

progression, succession, training or development and knowledge management.

In the response to the question to identify who in the organisation should initiate the practice of

measuring human resource, 49.6% of the respondents stated that the personnel from human

resource department should take the initiative, 35.6% of the respondents stated that personnel

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from account department should take the initiative and the remaining 14.3% of the respondents

stated that an independent party should be engaged to carry out the task. Those respondents who

identified the human resource personnel as the most appropriate to initiate the recording stated in

their notes; because they had the knowledge, expertise and data to do so. There were also

respondents who stated that this should be the initiative of personnel from both department–

Human Resource Department and Account Department. Table 5.14 that could be found in

Appendix shows the detailed analysis of the question on the personnel responsible to initiate


5.4 Obstacles to Measuring Human Resource

One of the objectives for this study was to find out the main obstacles to the valuation of human

resource. Thus, the question raised to the respondents was to list possible barriers for companies

to value human resource. Respondents were asked to consider each reason and to indicate on a

five point scale of how strongly they agreed with the obstacles listed in the questionnaire. Each

of the obstacles should be addressed in order to make progress in practice.

An overall analysis on the results of the scale of relevant, very relevant and extremely relevant is

described in Table 5.15 that could be found in Appendix. The obstacles that were identified are

listed under the scales of “Extremely Relevant”. The obstacles are presented, following the

sequence of high count to low:

i. Not required by the accounting regulations

ii. No knowledge of human resource disclosure

iii. Not information that can be shared openly

iv. Lack of clear guidance and direction of the concept

v. Measurement of human resource is not the priority of the organization

5.5 Preferred Structure to Record Human Resource Value

The respondents were questioned on the preferred structure to record the human resource value

regardless of the model in recording, as model of recording is not in the scope of research for this

study.

79.5% of the respondents indicated that voluntary human resource disclosure was the preferred

method to record the human resource value as the application of mandatory structure may have

problem with the restriction of accounting regulation. Table 5.16 that could be found in

Appendix shows the details analysis on the preferred structure of recording human resource

value.

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The respondents were asked to identify the measure that they considered to be important for the

companies. These measures included those might predominantly be used by the human resource

department in the companies. The following are the measures that the respondents noted as

important measures for a company, which follow the sequence of high count to low:

i. Training and education cost

ii. Revenue per employee

iii. Competency

iv. Turnover rate

v. Leadership Skills

The finding clearly shows that there is awareness of the importance of measures mentioned

above. Unfortunately, 74.1% of the organisations surveyed did not have a mechanism of

measuring human resource value in place (see Table 5.5 that could be found in Appendix). The

failure to utilise the measure reflects how little emphasis is given to the evaluation of many

human resource activities. Table 5.17 that could be found in Appendix shows the detailed

analysis of the human resource measures used by organisations.

5.6 Industry and Practices on Human Resource Disclosure

In the questionnaire, a question was raised to identify whether there were statistically significant

differences between industries and the importance of measuring human resources and the

preferred method of recording human resource.

Section 5.6.1 explains in details the findings of the importance of human resource disclosure in

terms of types of industry and the relationship between the importance of recording human

resource value and the amount of disclosure based on the different industries.

Section 5.6.2 reports the findings of the preferred method of recording human resource in

different industries and the preferred method of recording human resource for the industry as a

whole.

5.6.1 Importance of human resource disclosure based on Industries

From the results depicted in Table 5.18 that could be found in Appendix, it can be seen that the

top four industries that indicated that human resource disclosure was important for the

companies are industry under “Others”, mainly the maintenance contract companies followed by

Finance Accounting, Trading and Service and Consumer Product.

Respondents from industries such as Construction, Hotel, Technology, Industrial Product and

Properties showed to place less importance on the concept of human resource disclosure. On the

other hand, the respondents from companies which were labor and service intensive seemed to

place more emphasis on the importance of recording human resource value in the companies.

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5.6.2 Preferred Structure to Record Human Resource Value based on Industry

This section reports the findings on the preferred structure to record human resource value based

on industry. Detailed analysis shows that more than 70% of the respondents from most of the

industries preferred voluntary disclosure of human resource in the annual report. Table 5.19 that

could be found in Appendix shows the breakdown of the percentage for each industry.

Phase Two of the Study

5.7 Correlation Analysis

The correlations presented and discussed below provide the insight into the relationship between

the variables. For this phase of the research, the dependent variable, the awareness of the human

resource disclosure concept (AWHRDs), was analyzed using the data collected from

questionnaire. It also summarizes descriptive statistic for independent variables:

Size of the companies (SO)

Type of Industry (TI)

Listing Status (LS)

Disclosure of HR information in mission statement (MSD)

Financial performance (FP)

Based on the discussion on the development of hypothesis in Section 4.1, the construct of the

dependent and independent variables is tabulated below:

Construct of the Dependent and Independent Variables

Dependent variable Measurement

Awareness of the annual report

human resource disclosure

(AWHRD)

Measured by the awareness of the human resource

disclosure concept

Independent variables

Size of the organization (SO) Measured by the number of staff

Type of Industry (TI) Coded by industry classification in BURSA

Listing Status (LS) Coded by local or foreign listing

HR disclosure in mission

statement (MSD)

Coded by YES/NO human resource disclosure in

mission statement

Financial position (FP) Measured by total market capitalization

Pearson’s correlation should only be used when all variables are normally distributed; a

descriptive statistic for all variables was carried out to test for the normal distribution.

Descriptive statistics of all the independent variables used in the test of the relationship between

AWHRDs and companies’ specific characteristics is presented in Table 5.20 below. A range

value of the skewness between 2 to -2 is normally used as an acceptable range for normality

assumption Norusis (2004).

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Table 5.20: Descriptive Statistic for All Variables

N Minimum

Maximu

m Mean

Std.

Deviation Skewness Kurtosis

Statistic Statistic Statistic Statistic Statistic Statistic Statistic

AWHRD

s 371 1 2 1.55 .498 -.212 -1.966

SO 371 1 8 2.88 2.559 1.190 -.146

TI 371 1 11 6.32 3.408 -.187 -1.586

LS 371 1 4 1.22 .415 1.350 -.178

MSD 371 1 2 1.43 .496 0.279 -1.933

FP 371 1 10 9.38 1.981 -2.313 3.517

All the variables presented show an acceptable range of skewness except for the financial

performance with a 0.3 above the acceptable level. In this study, a Pearson Correlation was

conducted to identify the relationship between the variables.

Pearson’s correlation matrix for all variables with the sample size of 371 data sets collected from

questionnaires as illustrated in Table 5.21 below provides insights into the association between

the variables.

Table 5.21: Pearson’s Correlation Matrix for All Variables with the Sample Size of 371

TI SO LS MSD FP

AWHRD

s

TI Pearson

Correlation 1

Sig. (2-tailed) -

SO Pearson

Correlation .062 1

Sig. (2-tailed) .232 -

LS Pearson

Correlation

.176(**

) .179(**) 1

Sig. (2-tailed) .001 .001 -

MSD Pearson

Correlation -.014 -.071 -.018 1

Sig. (2-tailed) .795 .172 .731 -

FP Pearson

Correlation -.073

-

.152(**) -.032

.120(*

) 1

Sig. (2-tailed) .161 .003 .540 .021 -

AWHRD

s

Pearson

Correlation

.352(**

) .345(**)

.227(**

) -.022

-

.143(**) 1

Sig. (2-tailed) .000 .000 .000 .669 .005 -

** Correlation is significant at the 0.01 level (2-tailed).

* Correlation is significant at the 0.05 level (2-tailed).

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This correlations table indicates that:

i. The correlation between the awareness of human resource disclosure and type of

industry is 0.352 with a corresponding p- value of significant of 0.000 which is less

than 0.05 based on 371 samples. So, there is a significant positive relationship between

the awareness of human resource disclosure and the type of industry.

ii. The correlation between the awareness of human resource disclosure and size of the

companies is 0.345 with a corresponding p- value of significant of 0.000 which is less

than 0.05 based on 371 samples. Therefore, there is a significant positive relationship

between the human resource disclosure in the annual report and the size of the

companies.

iii. The correlation between the awareness of human resource disclosure and the

companies’ listing status is 0.227 with a corresponding p- value of significant of 0.000

based on 371 samples. Consequently, there is a positive significant positive relationship

between the human resource disclosure in the annual report and the companies listing

status.

iv. The correlation between the awareness of human resource disclosure and financial

performance is -0.022 with a corresponding p- value of significant of 0.669 which is

more than 0.05 based on 371 samples. There is not a significant relationship between

the awareness of human resource disclosure and the financial performance.

v. The correlation between the awareness of human resource disclosure and mission

statement of human resource disclosure is -0.143 with a corresponding p- value of

significant of 0.005 based on 371 samples. There is weak negative significant

relationship between the awareness of human resource disclosure and the mission

statement disclosure.

5.8 Multiple Regression Analysis

For the purpose of this phase of study, a multiple regression analysis using SPSS was conducted

in order to test the hypotheses developed in Section 4.1 regarding the relationship between the

awareness of the human resource disclosure concept and the selected corporate specific

characteristics.

There were various potential problems associated with the generalizations of the multiple

regression analysis which must be considered before employing the regression model. This was

no cause of concern to this phase of study, as the correlation matrix (see Table 5.21) shows that

all the correlation coefficient of independent variables was below the threshold of 0.800.

For the purpose of this study, the analysis on the awareness of the human resource disclosure

practices of 371 samples was based on the following multiple regression model:

AWHRDs = a + MCx1 + TI x2 + LSx3 + MSDx4 + FPx5 + e

Where

AWHRD = Awareness of the annual report human resource disclosure- Measured by the

awareness of the human resource disclosure concept

SO = Size of the organization- Measured by number of staff

TI = Type of Industry- Coded by industry classification in BURSA

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LS = Listing Status- Coded by local or foreign listing

MSD = HR disclosure in mission statement- Coded by YES/NO human resource

disclosure in mission statement

FP = Financial position- Measured by total market capitalization of the companies

a = Intercept

e = Error term

In this section, results from the multiple regression analysis, including the R2

and significance of

the regression model as well as the coefficient and significance of the independent variable are

discussed.

Table 5.21 displays the correlations for all the variables included in this phase of study. The

result shows that the independent variables are either not correlated or low correlated to the

dependent variable. Having low correlations of individual variable with each other would allow

them to make relatively unique contribution in predicting the dependent variable. The table also

shows that the relationship between the independent variables and dependent variable are not

significant except for the size of the industry; with a p value <0.05.

Table 5.22 below highlights the hypothesized and the actual relationships among the key

variables based on the hypotheses. The correlations indicate whether or not a relationship

between the variable exist.

Table 5.22: Hypothesized and Actual Relationship of Variables

Relationship Hypothesized Actual

H1 Large companies with various stakeholder groups

are more likely to be aware of the concept of


Positive Statistically

significantly

positive

H2 Companies with high level of employees’

concentration (service industry) are more likely to

be aware of the concept of human resource

disclosure as compared to companies with low-

level employees’ concentration (manufacturing

industry and others).


significantly

positive

H3 Companies, which are foreign listing companies,

are more likely to be aware of the concept of

human resource disclosure as compared to those

companies which are not.


significantly

positive

H4 Companies with staff development and staff

welfare in their vision and mission statement are

more likely to be aware of the concept of human

resource disclosure as compared to those that do

not.


not

significant

H5 Companies with better financial performance are

more likely to be aware of the concept of human

resource disclosure.


weak

negative

significant

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The model summary table (Table 5.23) displays R, R2, Adjusted R

2 and standard error of

estimate. The value of R, R2, and Adjusted R

2 measured the degree to which the awareness of

human resource disclosure was determined by the five independent variables. The value of the

standard error of the estimate measures the degree to which awareness of human resource

disclosure was not predicted from the five variables.

Table 5.23: Model Summary

Model R R Square Adjusted R Square Std. Error of the Estimate

1 0.497(a) 0.247 0.237 0.900

a Predictors: (Constant), Mission statement, Industry, Market Capitalization, Listing, Size of

companies

This model summary table shows that the multiple correlation coefficient of R=0.497. The R2 is

the coefficient of determination of 0.247 to measures the proportion of the total variation of

human resource disclosure. This explains that the variable of human resource disclosure in

mission statement, type of industry, capitalization of organization, listing status and size of the

companies accounted for approximately 24.7% of the dependent variable of disclosure of human

resource in annual report which is considered as weak ( Field,2005). Further, the standard error

of the estimate of 0.900 indicates the degree to which the independent variables were unable to

predict scores on the dependent variable of 0.90 points on average which is quite a low

estimation.

As illustrated in Table 5.24, analysis on ANOVA was used to test whether the regression model,

with all of the independent variables included, significantly predicted the awareness of the

disclosure of human resource in the annual report. In ANOVA, a p-value less than or equal to

0.05 indicates that the regression model, with all the independent variables included,

significantly predicts the dependent variable in a study.

Table 5.24 shows the p- value of 0.000 which is less than 0.05. This leads to the conclusion that

the regression equation with the five independent variables is able to significantly predict the

awareness of disclosure of human resource in annual report.

Table 5.24: Analysis on ANOVA

Mode

l Sum of Squares df Mean Square F Sig.

1 Regressio

n 97.218 5 19.444 23.992 .000(a)

Residual 295.801 365 .810

Total 393.019 370

a Predictors: (Constant), Mission statement, Industry, Market Capitalization, Listing, Size of

companies

b Dependent Variable: Awareness of the HR disclosure concept

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Analysis of coefficients was also carried out to obtain necessary values to construct a regression

equation and to test each of the independent variable for significance.

Table 5.25 shows the analysis of the independent variables for significance. The p-value for size

of companies, type of industry and listing status was less than 0.05. These three variables

accounted for a significant amount of unique variance in the awareness of human resource

disclosure concept. On the other hand, the financial position of the companies and disclosure of

mission statement were not significant since the p-value was more than 0.05.

Table 5.25: Analysis of Coefficients

Model

Un- standardized

Coefficients

Standardized

Coefficients t Sig.

B

Std.

Error Beta B

Std.

Error

1 (Constant) 1.123 0.248 4.530 0.000

Size of companies 0.103 0.016 0.295 6.307 0.000

Industry 0.093 0.014 0.308 6.658 0.000

Listing 0.293 0.116 0.118 2.523 0.012

Financial Position -0.027 0.017 -0.074 -1.591 0.112

Mission statement 0.029 0.095 0.014 0.302 0.363

a Dependent Variable: Awareness of HR disclosure concept

For the purpose of this study, the following regression equation was developed:

AWHRDs = a + MCx1 + TI x2 + LSx3 + MSDx4 + FPx5 + e

Where

AWHRD = Awareness of the annual report human resource disclosure- Measured by the

awareness of the human resource disclosure concept

SO = Size of the organization- Measured by number of staff

TI = Type of Industry- Coded by industry classification in BURSA

LS = Listing Status- Coded by local or foreign listing

MSD = HR disclosure in mission statement- Coded by YES/NO human resource

disclosure in mission statement

FP = Financial position- Measured by total market capitalization of the companies

a = Intercept

e = Error term

The values in the regression equation are indicated in Table 5.25. Entering these values in the

regression equation formula produced the following equation to predict the human resource

disclosure in annual report scores. This is the regression equation based on the score of 371 data

collected from questionnaire. The purpose of the regression was to be able to give an individual’s

score on the five independent variables and to further predict the awareness of the human

resource disclosure.

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AWHRDs = 1.123 + 0.103SO + 0.093TI + 0.293LS + (-0.027)FP + 0.029 MSD +e

6. Limitation of the Study

There are three significant limitations of this study. The first limitation is that this study does not

examine in details the models of measuring human resource value in the annual report and the

benefits of the methods of measuring human resource. While the investigation into the awareness

of human resource disclosure in annual report may enhance the understanding of the motivation

behind such disclosure, exploring what model would be used or had been used would enhance

the research literature on the disclosure of human resource in the annual report.

The second limitation is that the literature review might not be extensive enough. Despite the

considerable number of articles covered in the literature review, there is still articles on the title,

which could not be recovered due to the followings reasons such as the difference in the use of

key words by researchers from that used for the literature search, the availability of the relevant

articles in the database and the failure to include some the articles due to the fact that only the

abstract rather than full text was available and which, the researcher felt, might not give the full

understanding of the topics.

The third limitation is that due to the time constraint it prevented the researcher from extending

the data collection period for this study. Subsequently, the useable questionnaires collected from

the sample size accounted for 82 % of estimated response of 453. A larger sample size may have

allowed for a more thorough examination of the study.

7. Conclusions and Future Research

Given the increasing number of knowledge workers and new knowledge based opportunities in

Malaysia, it is expected that the increase in the understanding and implementation of this new

phenomenon will force companies to further develop and manage their human resource

effectively. Disclosure of human resource in financial statement and annual report would become

very significant.

This study has followed the first three of the five stages of the framework developed by Johanson

and Nilson (1996) on implementation of human resource disclosure in the companies’ annual

report. The first three stages of the framework, awareness of the concept, attitude of the users

and identification of the methods of measuring was utilized. This study focused on the

preliminary stage of Human resource disclosure concept in Malaysia by identifying the current

practices of human resource disclosure in Malaysia. This included the awareness of the concept

of human resource disclosure among Malaysian companies and the treatment of human resource

disclosure that stakeholders perceive to most appropriately introduce in the future.

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In summary, this research has contributed to new knowledge on the awareness and the human

resource disclosure in Malaysia, the perceptions of the stakeholders among the companies in

Malaysia on awareness, acceptance, importance and obstacles of the disclosure of human

resource in the financial report and the correlation between the corporate characteristic to the

awareness of the human resource disclosure concept.

The study findings also indicate that the awareness of human resource disclosure as a dependent

variable has a significant positive relationship with the independent variables of size of the

companies, type of industry, listing status of the companies a weak negative significant with

financial performance, and non significant relationship with the mission statement disclosure.

Therefore the following hypotheses were supported:

Hypothesis 1 (H1): Firm size was found to be significantly associated the degree of awareness of

the concept of human resource disclosure. This finding is in line with most of the previous

empirical studies examining voluntary disclosure practices as discussed. Further investigation on

multiples regression analysis, firm size was statistically positively related to the disclosure and

awareness of the concept of human resource disclosure, and hence H1 was supported.

Hypothesis 2 (H2): The type of industry was found to be significantly associated with the degree

of awareness of the concept of human resource disclosure. The results reveal that there was a

statistically positive relationship between industry type and awareness of the human resource

disclosure. Analysis shows that companies with high level of employees’ concentration (service

industry) are providing more human resource disclosure. Based on multiples regression analysis,

H2 was supported.

Hypothesis 3 (H3): The findings in this study show that there is a statistical positive relationship

between the listing status of the companies and the awareness of the human resource disclosure,

whereby companies which are foreign listing companies provide more human resource

information in the annual report. Based on the multiple regression analysis, there was a

significantly positive association between listing status and the two hypotheses. Therefore H3

was supported.

There are other avenue of further research relate to the quantitative measures of human resource

value in the annual report. It is essential that human resource be measured and valued in financial

term if it is to be accommodated within the accounting profession’s existing financially driven

framework. It is very clear that human resource value will be denied as equal to other assets in

financial statement unless emphasis is placed on some form of financial quantification.

Other direction of future research could involve examining the impact of recording human

resource in annual report for companies with such a procedure in place. While most of the users

aware that human resource disclosure is important to a company, it is equally important to know

how the procedure would impact the operation, decision making of a company.

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