International Research Journal of Accounting and Auditing (ISSN: 2251-0028) Vol. 1(1) pp. 1-6, May, 2013 Available online @http://www.interesjournals.org/IRJAA Copyright ©2013 International Research Journals Review The impact of bank employees on the value of business firms in Nigeria Eyenubo A. Samuel Department of Accounting and Finance, Faculty of Social Sciences, Delta State University, Abraka E-mail: [email protected] Abstract The work is anchored on “the impact of bank employees on the value of business firms in Nigeria”. The study was set out to establish the relationship between employees and the value that they bring to the business firms. In trying to do so, the study adopted the use of secondary data gotten from the Nigerian Stock Exchange Fact book during the period 2001 – 2010 and the regression statistical technique was employed to test our hypothesis. The findings of the study revealed that the role of employees in an organization has impact on the value of business firms. The study proffered useful recommendations amongst others that management of business firms should look at matters that militate against the value of business firms, by improving employees through manpower training and development which will in turn enhance the value of business firms in Nigeria. Keywords: The bank employees, value of a firm, financial performance. INTRODUCTION According to Anthony and Coleman (2007), banks play an important role in the implementation of corporate governance in developing markets. The role involves transfer of funds from savers to users and in addition, they have appropriate criteria for lending and do not use leverage as a tool to implement corporate governance. The responsibilities of bank are higher in developing markets compared to developed financial markets. Burki, and Ahmad (2007) further observed that bank is less costly compared to public monitoring where all the shareholders are doing the same job. Banks as creditors play the role of a monitoring and eliminating the free rider problem from the market thereby reducing the duality of effort. Literature review The players of the corporate governance mechanism include managers, employees, customers, shareholders, executive management, suppliers and the board of directors. Literature suggests that in developing and developed markets the roles of a regulatory authority, board, management, suppliers, customers and creditors are important in improving the value of a firm (Ping, 2004). Corporate governance is focused on the protection of the rights of shareholders and plays an important role in the development of capital markets by protecting their interests (Kahan and Rock, 2003). Theoretically, the stakeholder model takes a broader view of the value of a firm. The traditional stakeholder model holds that the corporation is responsible to a wider constituency of stakeholders other than shareholders. Other stakeholders may include contractual partners such as employees, suppliers, customers, creditors, and social constituents such as members of the community in which the firm is located, environmental interests, local and national governments, and society at large (Berger et al., 2005). This view holds that business firms should be “socially responsible” and “adequately managed” in the interest of the public. The problem with the traditional stakeholder model of the firm’s value is that it is difficult, if not impossible, to ensure that corporations fulfils these wider objectives. Blair (1995) states the arguments against this point of view: “the idea behind the stakeholders model failed to give clear guidance to help managers and directors set priorities and decide among competing socially beneficial uses of corporate resources, and provided no obvious enforcement mechanisms to ensure that corporations live up to their social obligations. As a result of these deficiencies, few academics, policymakers, or other pro- 2 Int. Res. J. Account. Auditing ponents of corporate governance reforms still espouse this model.” However, given the potential consequences of corporate governance for economic performance, the notion that business firms have responsibilities to parties other than shareholders merits consideration(Ram et al., 1995).What matters is the impact that employees can have on the value of the business firm and on economic growth in generality. Any assessment of the implications of corporate governance on economic performance must consider the incentives and disincentives faced by all participants who potentially contribute to the value of business firms. With this in mind, the stakeholder model has recently been redefined; where the emphasis has been to more narrowly define what constitutes a stakeholder. Therefore, the “new” stakeholder model specifically defines stakeholders to be those actors who have contributed firm specific assets. This redefinition of the stakeholder model is also consistent with both the transaction costs and incomplete contract theories of the firm in which the firm can be viewed as a “nexus of contracts” (Gustafsson and Williamson, 1990). The “best” firms according to the “new” stakeholder model are ones with committed suppliers, customers, and employees. This new stakeholder approach is, therefore, a natural extension of the shareholder model. For example, whenever firm specific investments need to be made, the performance of the firm will depend upon contributions from various resource providers of human and physical capital. It is often the case that the competitiveness and ultimate success of the firm will be the result of teamwork that embodies contributions from a range of different resource providers including investors, employees, creditors, and suppliers. Therefore, it is in the interest of the shareholders to take account of other stakeholders, and to promote the development of long term relations, trust, and commitment amongst various stakeholders (Mayer, 1996). Corporate governance in this context becomes a problem of finding mechanisms that elicit firm specific investments on the part of various stakeholders, and that encourage active co-operation amongst stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises, see the OECD Principles of Corporate Governance (OECD, 1999). Bowen et al. (1995) show that firms that have more on-going implicit claims with stakeholders such as employees, suppliers, and customers choose relatively aggressive accounting methods to influence stakeholders’ assessments of the firm’s reputation. A large number of employees were voluntarily resigned from the banks under the golden shake hand scheme. Also, number of branches of state owned banks which were not performing well was also closed down. Finally, the governance of the banking sector in Nigeria was influenced by merger and acquisitions of some private and foreign banks. New policy introduced by Central Bank of Nigeria has also encouraged merger and acquisition of small and struggling private and foreign banks by their financially superior counterparts all in a bid to improve the value of banks and create better reputations for them. This study therefore sought to establish “the impact of bank employee on the value of business firms in Nigeria. Hypothesis of the Study Ho: Bank employees do not affect the value of a firm. Hi: Bank employees affect the value of a firm. Model specification Regression analysis will be used as a tool for hypotheses testing to reveal the relationship between bank employees and the value of business firms. The regression will specify the relationship among the dependent variable, independent variable. The general representation of the model is given in the equation below. The general representation of the model is as follows: Yt= C + β1tlogX1t+ Ut Where: Yt(regrassand) = Net Profit; C = Intercept; βt(β1– β5) = Slope of the independent variable; Xt(regressor) = Independent variables; t = Periods; Ut = Error term; β1 = Number of Employees DATA ANALYSIS NPAT = 3.181NPAT + 2.130NEMPLOYEE (1.003) (1.264) 2 R = 0.926 2 R Adjusted = 0.946 F-statistic = 37.276 f-critical = 4.04 t-statistic = 2.130 t-critical = 2.021 Prob (F-statistic) = 0.000000 DW = 2.272 df = 1 – Numerator and 48 Denominator Level of Sign = 0.05% _ 2 2 R /R Adjusted 2 The R represents the coefficient of determination and 2 goodness of fit test. The R suggests that 93% of the total variation in the dependent variable (NPAT) has been explained by NEMPLOYEE and this is a good fit since Eyenubo 3 2 the unexplained variation is just 7% (1 – 0.93). The R 2 which is the adjusted R for degrees of freedom suggests that 95% of the changes in the dependent variable (NPAT) have been explained by MCAP. F-test The f-test is used to test the overall significance of the model and the hypotheses. The decision rule of the f-test is that if f-calculated > f-critical, we reject the null hypothesis and accept the alternative hypothesis. The opposite is the case if the f-calculated < f-critical. The result revealed that f-statistic with value 37.276 is> fcritical with value 4.04 and this suggest that we reject the null hypothesis and accept the alternative hypothesis which states that the roles of employees affect the value of a firm. T-test The t-test is used to test the statistical significance of each independent variable in explaining the changes in the dependent variable. The t-test shows the predictive power of each independent variable. The decision rule of the t-test is that if t-calculated > t-critical, it suggests that the particular independent variable is statistically significant in explaining the changes in the dependent variables. The t-test suggests that the t-calculated with value 2.130 is > t-critical with value 2.021 and this mean that NEMPLOYEE is statistically significant in explaining the changes in NPAT. Dw The Durbin Watson test is used to test for the presence or absence of first order serial correlation in the model. The Durbin Watson test with value 2.272 suggests that the model show support for the existence of first order serial correlation. Signs/Magnitude The Signs and Magnitude is used to show the linear relationship that exists between the dependent and independent variable whether there are positive or negative relationships. The result shows that NEMPLOYEE have a positive linear relationship with the NPAT. That is, an increase in the NEMPLOYEE by 2.130units will increase the NPAT by 3.181units. CONCLUSION The purpose of this study is aimed at examining “The Role of Bank Employees and the Value of a Firm in Nigeria”. To accomplish this task, a study of this nature was carried out with 22 banks quoted on the Nigerian Stock Exchange during the period 2001 - 2010. We have concluded that the role of bank employees has effect on the value of a firm. A better and efficient employee is a reflection of higher value of a firm. Investment in employees is most likely to yield a good return for firms compared to firms with lower investment in employees because the value of the firm having inefficient employees are more liquid. In contrast, the companies having efficient employees are sometimes more profitable because of a higher growth potential. RECOMMENDATIONS Based on the findings of the study, banks are enjoined to place a remarkable degree of emphasis on the area of their financial performance and to some extent embark on improving employees (human capital development). It could be advantageous if banks try as much as possible to improve human capital as it instills growth in the company and that is relevant to the need of changing economic circumstances. Above all, it will be advisable for management of banks to look at the matters of prevailing economic situation that militates against the value of their financial performances. Policy recommenddations should attempt to account for the interactions between the role of bank employees and the institutional framework in the country. The search for good practice should be based on an identification of what works in Nigeria, to discern what broad principles can be derived from these experiences, and to examine the conditions for transferability of these practices to other countries. As this research has demonstrated, not only will different improvements be called for in different systems but these improvements will also depend upon the factors determining the effectiveness of different systems. REFERENCES Anthony K, Coleman (2007). Corporate Governance and Shareholder Value Maximization: An African Perspective, Afr. Dev. Rev.; 19 (2). Berger AN, Clarke RC, Klapper L, Udell GF (2005). Corporate governance and bank performance: A joint analysis of statics, selection, and dynamic effects of domestic, foreign and state ownership, J. Baking and Finance; 29. Blair M (1995). Ownership and control: rethinking corporate governance for the twenty-first century, Brookings Institution, Washington DC. Bowen R, Noreen E, Lacey J (1995). Determinants of the corporate decision to capitalize interest. J. Account. Econom. 3(3). Burki A, Ahmad S (2007). “Corporate Governance Changes in Pakistan’s Banking Sector: Is there a Performance Effect?”Center for Management and Economic Research, working paper. Gustaffson B, Williamson O (1990). The Firm as a Nexus of Treaties, London: Sage Publications. Kahan M, Rock E (2003). ‘Corporate constitutionalism: anti-takeover charter provisions as pre-commitment’ working paper, New York University Law School, available at 4 Int. Res. J. Account. Auditing http://Isr.nellco.org/upenn/wps/papers/19, accessed 1 June Mayer C (1996). “Corporate governance, competition and performance”, OECD Economic Studies, 27. OECD (1999), OECD Principles of Corporate Governance, Paris. Ping J (2004). The Relationship Between Ownership Structure and Firm Performance: an Empirical Analysis over Heilongjiang Listed Companies, Nature and Science, 2(4). Ram B, Charles M, Ramesh S (1995). CEO duality and firm performance: WHAT'S THE FUSS?, Research Article, Received: 28 September Eyenubo 5 APPENDIX Regression Result on NEMPLOYEE Descriptive Statistics Mean Std. Deviation N NPAT 4.31E5 231499.200 50 NEMPLOYEE 1716.10 274.583 50 Correlations NPAT NEMPLOYEE Pearson Correlation NPAT 1.000 -.161 NEMPLOYEE -.161 1.000 Sig. (1-tailed) NPAT . .132 NEMPLOYEE .132 . NPAT 22 22 NEMPLOYEE 22 22 N Variables Entered/Removedb Model Variables Entered Variables Removed Method 1 a NEMPLOYEE . Enter a. All requested variables entered. b. Dependent Variable: NPAT Model Summaryb Change Statistics Model 1 Adjusted Std. Error of R Square F Sig. F DurbinR Square R Square the Estimate Change Change df1 df2 Change Watson R a .961 .926 .946 230849.348 .926 37.276 1 48 a. Predictors: (Constant), NEMPLOYEE b. Dependent Variable: NPAT ANOVAb Model 1 Sum of Squares Df Mean Square Regression 6.801E10 1 6.801E10 Residual 2.558E12 20 5.329E10 Total 2.626E12 21 a. Predictors: (Constant), NEMPLOYEE b. Dependent Variable: NPAT F Sig. a 37.276 13.264 13.264 2.272 6 Int. Res. J. Account. Auditing APPENDIX CONTINUE Model Summaryb Change Statistics Model 1 Adjusted Std. Error of R Square F Sig. F DurbinR Square R Square the Estimate Change Change df1 df2 Change Watson R a .961 .926 .946 230849.348 .926 37.276 1 48 13.264 2.272 a. Predictors: (Constant), NEMPLOYEE b. Dependent Variable: NPAT Coefficientsa Unstandardized Coefficients Model 1 B Std. Error (Constant) 663914.703 208679.820 NEMPLOYEE -135.684 120.104 Standardized Coefficients Beta t 3.181 1.003 -.161 2.130 1.264 a. Dependent Variable: NPAT Residuals Statisticsa Minimum Maximum Mean Std. Deviation N 3.94E5 4.89E5 4.31E5 37256.386 50 -3.338E5 4.090E5 .000 228481.600 50 Std. Predicted Value -.987 1.563 .000 1.000 50 Std. Residual -1.446 1.772 .000 .990 50 Predicted Value Residual a. Dependent Variable: NPAT Sig.