Entities’ Performance and Human Resource Costs Derecognition in the Statement of Financial Position (SOFP): GMM Evidence from the NGX

Abstract

This study explored Entities’ Performance as an explained function of Human Resource Costs (HRC) to further justify recognition of the Labour Costs proxies in the Statement of Financial Position (SOFP). This has been investigated to provide robust empirical evidence from the Nigerian Exchange Group (NGX) to spur the International Accounting Standard Board (IASB) to release an Exposure Draft (ED) for public discussion and have a standard to recognize proxies of HRC as assets in the SOFP. To provide grounds for inclusion of HRC in the SOFP by the IASB, unlike most other empirical studies reviewed, which deployed limited methods and years of time series data, this study expanded the scope and methods using Pooled Cross-Sectional (PCS) time series data of 27 quoted companies from 1992 to 2023 in the NGX. While most studies employed inefficient Ordinary Least Squares (OLS), this current study progressed from Descriptive Statistics to OLS, Pooled OLS, and Rodman’s Xtabond2 Generalized Method of Moments (GMM) to resolve the conundrums of endogeneity, reversed causality, and stationarity common to unbalanced PCS time series data. The results revealed from the GMM showed that LSW (18.40), positive, and LTD (−22.63), inverse, and Wald ^2 = 66.35 with p-value (0.002), obviously validated the strong joint significance of the regressors on ROA (performance) of 27 sampled firms in the NGX. It is recommended that IASB align with the momentum from the output of research from academia by issuing standards to recognize HRC as assets in the SOFP.