THE IMPACT OF HUMAN RESOURCE ACCOUNTING ON FIRM PERFORMANCE

Abstract

Human Resource Accounting (HRA) is an emerging topic in modern academic and business society due to the increased necessity of accounting for the worth of human resources as a result of their capacity to affect the firm's performance through their skills and capabilities. However, Sri Lankan businesses struggle to adopt HRA into their organizational practices due to a lack of assurance about how it affects the performance of firms as a result of the unavailability of the proper guidelines for HRA and the scarcity of research related to its effects on performance. This study attempted to answer this problem with the objective of investigating the impact of human resource accounting on the firm performance of listed material sector companies listed in Colombo Stock Exchange (CSE). The research model was conceptualized by using the independent variable, human resource accounting, and the dependent variable, firm performance. A quantitative approach was used for this study, and a sample of eighteen companies was drawn from the population of listed companies operating in the material industrial sector in Sri Lanka using the purposive sampling method. The published annual reports in the CSE for a five-year period (2017–2022) were used to collect the data, and four hypotheses were formulated to conduct the research. Descriptive statistics, correlation analysis, and panel regression analysis were used as analytical techniques. Results of the study revealed that the current degree of adoption of human resource accounting among the listed material sector companies was within the moderate level, while the panel regression analysis depicted that human resource accounting has a significant effect on the performance of listed material sector companies. These results imply the necessity of increasing the level of adoption of human resource accounting practices to boost the firm performance of listed material sector companies. Moreover, these results have numerous implications for employees, labor unions, regulatory authorities, accounting standard-setters, and policymakers.