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Original Article | Open Access | Can. J. Bus. Inf. Stud., 2020; 2(4), 66-74. | doi: 10.34104/cjbis.020.066074

Human Capital Investment and Its Impact on Firms Performance: A Study on Private Commercial Banks in Bangladesh

Mohammad Rafiqul Amin* Mail Img

Abstract

Human capital is important possessions used to achieve a firms competitiveness and it is through investment (the commitment of a firms fund in human resource development with the hope of generating returns), we can expand it. This study embodies the investment scenario in human capital development made by different private commercial banks of Bangladesh and the impact of the investment on firms performance. The researchers have used different HR metrics (Human Capital ROI, Net Profit after Tax per Employee, HR Expense Factor, Organizational Training Cost per Employee, Human Capital Value Added) to measure the impact of human capital investment on a firms performance. Finally, the study reveals that investment in human capital development significantly increases a firms performance. 

INTRODUCTION

Human capital, the collective skills, information and skills of human beings that make contributions to organizational success is an asset to be leveraged to pressure cost and optimize organizational performance. In this know-how based totally economy, corporations are trying to find to optimize their group of workers via complete human capital improvement applications now not solely to gain commercial enterprise dreams however most vital is for a lengthy time period survival and sustainability. To accomplish this under taking, corporations will want to make investments assets to make sure that personnel have the knowledge, skills, and skills they want to work successfully in an unexpectedly altering and complicated environment. In response to the changes, now most companies have embraced the idea of human capital as a supply of aggressive benefit that will decorate greater perfor-mance. Hence, range is positively linked to higher trouble fixing and providing developing options (Michel & Hambrick, 1992).

Nowadays human capital improvement will become a section of a usual effort to obtain cost-effectiveness and company performance. Hence, corporations want to apprehend human capital that would beautify worker pride and enhance performance. This lookup find out about shed lights on funding in human capital improvement and its have an impact on firms performance. At a glance, good sized research have been carried out on human capital and their implications on association overall performance have been broadly blanketed and obviously, human capital enhancement will end result in higher competitiveness and overall performance (Agarwala, 2003).

Literature review

The time period “human capital” has been described by means of Schultz, (1993) as a key aspect in enhancing a company belongings and personnel in order to enlarge productive as properly as maintain aggressive advantage. To maintain competitiveness in the company human capital turns into an instrument used to amplify productivity. Human capitals refer to techniques that relate to training, training and different expert initiatives in order to extend the tiers of knowledge, skills, abilities, values, and social property of a worker which will lead to the employees pride and performance and in the end on a company performance. Rastogi, (2002) referred to that human capital is a vital enters for companies mainly for employees non-stop enchantment in most cases on knowledge, skills, and abilities. Thus, the definition of human capital is referred to as “the knowledge, skills, competencies, and attributes embodied in persons that facilitate the introduction of personal, social and financial well-being” (Organization for Economic Co-Operation and Development or OECD, 2001). The notion of human capital have in addition been described with the aid of Garavan et al. (2001) that human capitals have 4 key attributes as follows: (1) flexibility and adaptability (2) enhancement of man or woman advantage (3) the improvement of organizational advantage and (4) man or woman employability. It indicates that these attributes in flip generate add values to character and organizational outcomes. Becker, (1996) argues that there are special sorts of capitals that encompass schooling, a pc education course, and bills on clinical care. And in fact, lectures on the virtues of punctuality and honesty are capital too. In the authentic sense, they enhance health, elevate earnings, or add to a persons perception of literature over a lifetime. Consequently, it is totally in retaining with the capital thinking as historically described to say that charges on education, training, and scientific care, etc., are funding in capital. These are now not actually fees however funding with treasured returns that can be calculated

The continuously altering enterprise surroundings require companies to attempt for best aggressive blessings by way of dynamic enterprise plans which comprise creativity and innovativeness. This is genuinely vital for their lengthy time period sustainability. Undoubtedly, human capital performs an enormous function in improving firms competitive- ness (Barney, 1995). In addition, Doucouliagos (1997) has mentioned human capital as a supply no longer solely to inspire people and raise up their dedication however additionally to create expenditure in R & amp; D and in the end pave a way for the technology of new information for the financial system and society in general. Also, for small groups it is a treasured asset, which is positively related with commercial enterprise performance. Becker, (1993) additionally referred to the most treasured of all capital is that funding in human being. Human capital has a direct affect on the mental capital property that will yield greater economic outcomes per employee. Therefore, improvement human capital has a direct have an effect on ROI of firms. A causal mannequin the use of a set of cross-sectional facts developed through Selvarajan et al. (2007) shows that human capital enhancement paves a way for larger innovativeness and this in flip gives fantastic implications on association perfor-mance. Some even encouraged that human capital improvement is a prerequisite to top economic overall performance (Delaney & Huselid, 1996) and in addition, the significance of organizational human capital with regard to association overall performance was once in addition supported by way of Hsu et al. (2007).  

In the meantime, human capital enhancement can additionally be considered in the context of pinnacle administration crew (TMT). Heterogeneity or every now and then is known as variety in TMT will have a tendency to lead to increased overall performance because the argument is heterogeneity promotes a variety of traits to be absorbed into the work pressure team; this consists of humans of extraordinary age groups, practical backgrounds, schooling backgrounds, tenure and gender. These traits have an advantageous affect on company overall performance as argued beneath the higher echelon idea (Hambrick & Mason, 1984). Studies disclose that heterogeneity is positively linked to higher trouble fixing and providing innovative options (Michel & Hambrick, 1992). Undoubtedly, heterogeneity (in the structure of human capital) can be a extensively essential enter to human capital improvement and enhancement as it makes corporations to be extra innovative and progressive for lengthy time period survival in their worldwide and international markets (Grossman, 2000). 

We can say thru above literature that funding in human capital improvement is crucial to enhance organizational performance. In relation to this, the definition of association overall performance may want to fluctuate from one and another. Nonetheless, some clear definitions of company overall performance in the context of human capital enhancement should be put forward. In some cases, monetary overall performance measures such as proportion of income ensuing from new products, profitability, capital employed and return on property (ROA) (Selvarajan et al., 2007; Hsu et al., 2007). Besides, return on funding (ROI), income per share (EPS) and internet profits after tax (NIAT) can additionally be used as measures of economic overall performance (Grossman, 2000). 

Interestingly, researchers additionally have a tendency to benchmark managerial accounting warning signs in opposition to the monetary measures in six dimension; ‘workers compensation (workers compensation costs divided with the aid of sales); ‘quality (number of mistakes in production); ‘shrinkage (e.g. stock loss, defects, income return); ‘productivity (payroll fees divided via output); ‘operating expenses (total running costs divided through sales) (Wright et al., 2005). On the different hand, association overall performance can additionally be measured the use of ‘perceived overall performance approach (also referred to as subjective overall performance measure) the place Likert-like scaling is used to measure association overall performance from the pinnacle administration views (Selvarajan, 2007).

Since Banking enterprise of Bangladesh is developing extensively after the independence and contributing pretty to our human capital improvement as properly as monetary development, so our find out about tries to seem to be into the connection between human capital funding and its influence on firms overall perfor-mance in this sector. Hence, this paper therefore, the following lookup query is used to information our investigation: To what extent does funding in human capital create have an effect on company performance? While a whole lot of the argument in the literature in phrases of elements contributing to performance, this paper appears at one of the elements i.e. human capital.

Review on banking industry in Bangladesh:

Bangladeshs banking industry began its journey after independence with 6 nationalized commercialized banks, 2 state-owned specialized banks and 3 inter-national banks. With the accession of private banks, the banking sector experienced major expansion in the 1980s. Now Bangladeshs banks are mainly of two types: 

Scheduled Banks: Banks certified under the Bank Company Act, 1991 (Amended up to 2013) are named Scheduled Banks. There are 57 scheduled banks in Bangladesh operating under full Bangladesh Bank control and supervision that are empowered to do so through Bangladesh Bank Order, 1972 and Bank Company Act, 1991. Scheduled Banks are listed as follows: 

State Owned Commercial Banks (SOCBs): There are 6 SOCBs that are wholly or substantially owned by the Bangladesh Government. 

Specialized Banks (SDBs): 2 specialized banks which have been established for specific objectives such as agricultural or industrial development are now operating. These banks are also wholly or largely the property of the Bangladesh Government. 

Private Commercial Banks (PCBs): There are 40 private commercial banks, most of which are private individuals owners. PCBs can be subdivided into two groups: 

Conventional PCBs: Now 32 traditional PCBs are active in the industry. In traditional fashion they execute the banking functions i.e. interest based operations. 

Islami Shariah based PCBs: In Bangladesh, there are 8 Islamic Shariah based PCBs and they carry out banking activities according to Islamic Shariah-related principles i.e. The Profit-Loss Sharing mode (PLS). 

Foreign Commercial Banks (FCBs): 9 FCBs are operating in Bangladesh as the branches of banks that are established overseas. 

Non-Scheduled Banks: The banks are called Non-Scheduled Banks, which are formed for particular and definite purposes and function under the acts enacted to fulfill those objectives. These banks are unable to execute all of the scheduled banking functions. Bangladesh now has 6 non-scheduled banks (https://www.bb.org.bd/fnansys/bankfi.php)

Objectives of the Study: 

The primary objective of the study is to reveal the impact of investment in human capital development on firms performance. Other specific objectives are -

1. To represent the scenario of investment in human capital development.

2. To illustrate the degree of leverage of human capital.

3. To determine return on human investments.

4. To represent the value created by employees, and  

5. To illustrate the firms efforts to develop employees abilities.

METHODOLOGY

This analytical research is based on secondary information collected from different financial statements of private commercial banks Ltd. in Bangladesh. This study is conducted in total of 8 private commercial banks. This sample has been selected through convenient sampling method. The data used in this research is quantitive in nature. However, the theoretical part of this study is formalized from different books, journals, publications of thesis. Finally, the authors have used different HR metrics to analyze the data to measure the impact of human capital investment on firms performance. The HR metrics are - 

HR Metrics

Formula

Human Capital ROI

Revenue – (Operating Expenses – Compensation + Benefits Costs) / Compensation + Benefits Costs

Profit after Tax per Employee

{(Revenue – Operating Expenses) – Tax & Provisions} / Number of Full Time Equivalent Employees.

Human Resource Expense Factor

Total HR Expenses / Total Operating Expenses.

Human Capital Value Added

Revenue – (Operating Expenses – Compensation + Benefits Costs) / Number of Full Time Equivalent Employees.

Human Resource Expense Per Employee

Total HR Expenses / Number of Full Time Equivalent Employees.

Training Cost Per Employee

Total Training Cost / Number of Full Time Equivalent Employees.

ANALYSIS AND FINDINGS

1. Scenario of Investment in Human Capital Development:

The following Table 1 shows the scenario of commitment of funds in human capital development by different Private Commercial Banks in Bangladesh for the period of the year 2014 to 2016. Hence, we can say that proportion of funds invested in Human capital development by majority Private Commercial Banks in Bangladesh increased significantly.

2. The Degree of Leverage of Human Capital:

The degree of leverage of human capital means the percentage of funds invested in human capital development relative to total operating cost. The following Table 2 shows human resource expense factor which ultimately represents the degree of leverage of human capital by different Private Commercial Banks in Bangladesh for the period of the year 2014 to 2016.

Table 1: Scenario of investment in Human Capital Development.  

Name of the Banks

Human  Capital Investment

2014(TK)

2015(TK)

2016(TK)

BRAC Bank Ltd.

405,63,56,031

463,80,70,483

421,24,50,692

Jamuna Bank Ltd.

295,79,76,826

224,36,27,373

267,31,90,696

Southeast Bank Ltd.

141,92,58,208

148,09,75,954

194,16,68,434

One Bank Ltd.

183,34,00,006

197,48,49,197

227,54,49,383

ShahjalalIslami Bank Ltd.

178,64,87,554

183,19,95,913

196,87,14,169

Standard Bank Ltd.

152,50,58,026

165,50,01,478

172,85,99,496

IFIC Bank Ltd.

255,81,56,237

233,20,69,298

246,83,58,909

Mercantile Bank Ltd.

184,97,57,085

189,47,62,865

378,65,53,246

Table 2: Human Resource Expense Factor. 

Name of the Banks

2014

2015

2016

BRAC Bank Ltd.

47%

45%

53%

Jamuna Bank Ltd.

97%

67%

67%

Southeast Bank Ltd.

43%

41%

45%

One Bank Ltd.

56%

56%

57%

ShahjalalIslami Bank Ltd.

65%

64%

63%

Standard Bank Ltd.

66%

64%

61%

IFIC Bank Ltd.

57%

52%

48%

Mercantile Bank Ltd.

50%

46%

84%

Hence, we can say that proportion of funds invested in Human capital development by majority Private Commercial Banks in Bangladesh relative to total operating cost is almost parallel. Note that expenses for human resource development cover major portion (about 60%) of operating expenses (Milon, 2019).

3. Analysis of return on human investments:

Human Capital ROI or HCROI is an HR Metric that evaluates the financial value added by an organizations workforce against the money spent on them in terms of salaries and other benefits. The following Table 3 shows the percentage of profit obtained by a bank against every Taka invested in their human capital compensation.

The HCROI shows the ratio of income derived against the total employment costs (compensation and benefit cost) by different Private Commercial Banks in Bangladesh for the period of the year 2014 to 2016. It is seen from the table that HCROI represents a decreasing trend from the year 2014 to 2016 except for the BRAC Bank Ltd. and Shahjalal Islami Bank Ltd., where we can see the increasing trend of HCROI.

4. Analysis of Profit after Tax per Employee: 

Measuring profit per employee can ensure a company is not overstaffed or understaffed. The following Table 4 shows that different Private Commercial Banks may have added employee team members to improve their revenues, but are they adding Taka to the bottom line? This HR metric will let Banks know if more is better, or whether their increased staffing is merely eating into their profits. 

From the following table it is seen that Profit after Tax per Employee of the sampled Banks except Standard Bank Ltd. has increased significantly from the year 2014 t0 2016. It means that Private Commercial Banks in Bangladesh have been able to generate satisfactory return on their investment in intellectual capital.

Table 3: Human Capital ROI. 

Name of the Banks

2014

2015

              2016

BRAC Bank Ltd.

280%

276.31%

323%

Jamuna Bank Ltd.

209.37%

267.32%

259%

Southeast Bank Ltd.

680.30%

664.42%

539%

One Bank Ltd.

310.58%

311.18%

293%

ShahjalalIslami Bank Ltd.

237.72%

243.36%

259%

Standard Bank Ltd.

352.07%

298.42%

287%

IFIC Bank Ltd.

224.33%

256.59%

240%

Mercantile Bank Ltd.

340.05%

310.57%

212%

Table 4: Profit after Tax per Employee. 

Name of the Banks

2014

2015

2016

BRAC Bank Ltd.

2,89,798

3,06,878

701878

Jamuna Bank Ltd.

6,13,764

7,13,044

730447

Southeast Bank Ltd.

17,19,925

12,97,340

930839

One Bank Ltd.

8,76,527

9,46,294

1193891

Shahjalal Islami Bank Ltd.

3,48,867

6,13,098

761836

Standard Bank Ltd.

7,80,821

9,95,278

546286

IFIC Bank Ltd.

6,98,489

4,24,725

478752

Mercantile Bank Ltd.

5,65,795

5,94,614

1090507

Table 5: Human Capital Value Added. 

Name of the Banks

2014

2015

2016

BRAC Bank Ltd.

15,56,127

15,95,931

2110541

Jamuna Bank Ltd.

28,06,036

25,98,721

2810905

Southeast Bank Ltd.

43,38,649

40,07,353

3990502

One Bank Ltd.

30,51,667

31,09,946

3285308

ShahjalalIslami Bank Ltd.

19,75,537

20,62,667

2325030

Standard Bank Ltd.

34,47,185

9,95,278

2483066

IFIC Bank Ltd.

22,51,219

23,77,757

2311743

Mercantile Bank Ltd.

31,84,024

27,58,757

4672679

5. Analysis of Human Capital Value Added: 

Human Capital Value Added (HCVA) is an indicator, or measurement, of the financial value (profit) an average employee brings to an organization. The following Table 5 shows the average profit per employee or to what extent does the average employee contributes to the bottom line. The table shows that HCVA of most of the sampled Banks increased from the year 2014 to 2016.

6. Analysis of Human Resource Expense per Employee: 

This is efficiency metric. These metric shows the cost efficiency of HR expressed in Taka. The following Table 5 shows that the human resource expense per employee of sampled banks except standard bank has an increasing trend from the period of year 2014 to 2016 which means that banks are not cost efficient in respect of Human Resource.

Table 6: Human Resource Expense per Employee. 

Name of the Banks

2014

2015

2016

BRAC Bank Ltd.

5,62,212

5,84,582

662857

Jamuna Bank Ltd.

13,42,095

9,73,797

1090209

Southeast Bank Ltd.

6,39,018

6,23,306

742228

One Bank Ltd.

9,85,169

9,99,418

1122016

Shahjalal Islami Bank Ltd.

8,32,861

8,49,720

898546

Standard Bank Ltd.

9,81,376

10,31,797

867770

IFIC Bank Ltd.

10,12,329

9,36,950

973328

Mercantile Bank Ltd.

5,65,795

5,94,614

1853428

7. Analysis of Human Resource training cost per Employee:

This metric determines how much money an organization spends on employee training. We calculate it by determining the cost of employee training, and some businesses include the labor cost of employee hours spent in training classes as well. Also include the travel costs, course fees, the cost of your learning management system, and the time spent administering employee training, such as setting up courses and printing certificates (Saha et al., 2020). The following Table 7 shows that training cost per employee of the sampled banks except one bank limited has increased from the period of year 2014 to 2016 which means that private commercial banks in Bangladesh are giving efforts in training and developing their employees in boosting their banking services efficiently.

Table 7: Training Cost per Employee. 

Name of the Banks

2014

2015

2016

BRAC Bank Ltd.

6,298

6,563

9955

Jamuna Bank Ltd.

1,876

1,647

2273

Southeast Bank Ltd.

1,258

1,452

2194

One Bank Ltd.

2,609

2,009

1874

Shahjalal Islami Bank Ltd.

1,842

2,136

2061

Standard Bank Ltd.

2,278

2,837

2985

IFIC Bank Ltd.

8,778

10,260

10173

Mercantile Bank Ltd.

6,454

6,722

5218

CONCLUSION

The objective of the study was to find out the investment scenario of investment in human capital development and assess the impact of investment in human capital development on performance by Private Commercial Banks in Bangladesh. The findings of the research reflect that sampled banks have significant amount of investment in human capital development evidenced by significant total investment in human capital, higher degree of leverage of human capital, increasing trend of investment in human resource training and development over the study period. Findings also reflect the visible link between the human capital development and the Banks performance. Findings indicated growing trend of Human Capital ROI, Profit per Employee, and Human Capital Value Added over the studied period. Some banks were unable to make proper investment on Human Capital Development and to generate satisfactory return over such investment. Undoubtedly, only the quality resource, in this case - the developed human capital is the organizations economic and employees development basis. Therefore Banks should implement the human capital development policies that enhance human potential to ensure desired performance.

ACKNOWLEDGEMENT

This study was supported with proper help and guidance in the Dept. of HRM, JKKNIU, Trishal, Bangladesh. Heartiest thanks to Dept. of HRM, JKKNIU, Bangladesh.

CONFLICT OF INTERESTS

The researcher announces that they have no competing interests in the research.

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Article Info:

Academic Editor

Dr. Doaa Wafik Nada, Associate Professor, School of Business and Economics, Badr University in Cairo (BUC), Cairo, Egypt.

Received

May 24, 2020

Accepted

June 24, 2020

Published

July 1, 2020

Article DOI: 10.34104/cjbis.020.066074

Corresponding author

Mohammad Rafiqul Amin*

Assistant Professor, Department of Human Resource Management, JKKNIU, Trishal, Mymensingh, Bangladesh.

Cite this article

Amin MR. (2020). Human capital investment and its impact on firms performance: a study on private commercial banks in Bangladesh, Can. J. Bus. Inf. Stud., 2(4), 66-74. https://doi.org/10.34104/cjbis.020.066074

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