International Journal of Management Research and Emerging Sciences

Vol 13, No 4, December 2023, PP. 68-84

The Impact of Human Resource Accounting on Profitability: A Study of Listed

Textile Firms on PSX
Hasan ul Moin
Department of Management Sciences, SZABIST, Hyderabad Campus, Hyderabad, Pakistan
Naeem Ahmed Qureshi
Department of Statistics, Sindh Agriculture University, Tandojam, Pakistan
naeemqureshi@sau.edu.pk

Corresponding: hasan.sheikh.12382@gmail.com
ARTICLE INFO
Article History:
Received: 15 Jul, 2023
Revised: 08 Aug, 2023
Accepted: 22 Aug, 2023
Available Online: 14 Dec, 2023
DOI:
https://doi.org/10.56536/ijmres.v13i4.503
Keywords:
human resource accounting, staff
cost, number of employees, return
on assets, return on capital
employed.
JEL Classification:
C23, J24, M41, M52, O15
ABSTRACT
Organizations spend a considerable amount of money on their employees;
however, the accounting treatment and disclosures of this amount still needs to
be standardized. This study aims to assess how the number of employees and
staff cost affects the financial outcomes of textile enterprises listed on the
Pakistan Stock Exchange. The purpose is to assist organizations in
understanding the impact and worth of their human capital investment in
accomplishing long-term goals. The study utilized an ex post facto analysis
methodology and obtained data from the financial statements of 73
organizations over a five-year period from 2017 to 2021. Panel regression
analysis was performed using E-views software. The Breusch-Pagan test is
employed to measure the heteroscedasticity of regression errors, and then the
Hausman test is utilized to determine the best approach between a fixed
effect and a random effect. The findings revealed that staff cost positively
affects financial performance, whereas the number of employees significantly
negatively affects financial performance. Therefore, the study recommends
investing in employees to boost the firm’s profitability. Also, accounting
standards and disclosures should be incorporated into human resource
accounting.
© 2023 The authors, under a Creative Commons Attribution-Non-Commercial 4.0.

INTRODUCTION
Human capital is regarded as a production factor that substantially influences a business's
growth. When a business enterprise invests in human assets either via acquisition or training, it
anticipates that these investments will generate earnings and provide services in the future (Barcons-
Vilardell et al., 1999). The global market comprises of numerous companies and stated rivals in
various industry standards. Therefore, enterprises must use worker profitability to produce more value
for the firms for further development that gives a competitive edge on an individual basis. Companies
use comprehensive human capital development programs to improve their employees, not only to
accomplish business objectives but also to ensure sustainability and long-term presence (Marimuthu
et al., 2009).

Still today, human resource is not adapted as an asset by accounting standards. Even organizations
with substantial capital assets could fail if they do not possess efficient human resource (Borah, 2023).
So, human resource accounting aims to assess the value of an organization's human assets
systematically. It then documents this valuation within the financial report, conveying the evolving
value over time and the outcomes derived from their deployment to the stakeholders of the financial
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statement (Pathan, 2023). Moreover, in the process of appreciating the significance of human capital,
it is imperative to consider a multitude of factors. These factors encompass not only the conventional
elements such as human resource amortization and idle intervals but also extend to encompass the
commitment and allegiance demonstrated by the workforce. It is essential to ensure that these intricate
details are made transparent and disclosed in a comprehensive manner (Pathak, 2023).

Traditionally, human resource expenditure has been viewed as a charge against revenues since it does
not create tangible assets. However, this view is changing, and spending on human resources should
be considered as capital expenditures because they provide benefits that can be realized over time and
measured in monetary terms (Kalpana & Gopinath, 2013). The shift in viewpoint highlights how
pivotal our human capital is and its potential to dramatically influence a business's long-term
prosperity. When we talk about human resource accounting, we are discussing the identification and
measurement of data pertinent to human resources. We then pass on this information to those who are
interested (American Accounting Association’s Committee on Human Resource Accounting, 1973).
It's about quantifying the costs and value of employees to a company, inclusive of expenses related to
recruiting, selecting, hiring, training, and developing the workforce (Kalpana & Gopinath, 2013). The
objective is to figure out the economic value that the employees add to the organization.

Human resource accounting goes beyond just assessing employees' economic value. It recognizes
human resources, tabulates their numbers, and engages with interested individuals (Gupta, 2021).
Despite ongoing discussions, the aspect of accounting for human resources is still a contested topic.
To resolve this, researchers and writers have explored methods for valuing and reporting individuals
in an organization's financial records (Edom et al., 2015). If businesses can correctly account for their
human resources, it paves the way for informed decisions and effective resource allocation to fulfill
their goals. The core purpose of HRA is to equip management with comprehensive data on the value
and costs of human resources. Gaining access to this data allows management to improve the caliber
and scope of the products and services the company offers. Furthermore, HRA can notify stakeholders
about the costs related to human resources and the potential benefits they could reap from them. HRA
offers cost-value insights to management, thus enabling them to make well-informed and efficient
decisions on acquiring, allocating, developing, and managing human resources. Ultimately, the goal
is to achieve cost-effective business outcomes through the optimization of human resources (Danaei
et al., 2014).

Despite the lack of accounting rules guiding the inclusion of HR items in financial statements, human
resources are considered a company's intellectual capital, as the competencies and skills of its
personnel define the organization's performance. Many companies reveal that staff development incurs
significant expenditures, such as training, employee welfare, medical care, and insurance, which are
currently classified as operating expenses, impacting the business's value and profitability for a certain
period (Khan, 2021). Therefore, calculating costs and establishing employees' worth and financial
value is crucial for the organization. To maximize human capital, businesses need to establish an
environment where human knowledge, skills, and creativity can be fostered. The current challenge for

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the business sector is creating and enhancing human capital capabilities concerning organizational
demands (Ofurum & Adeola, 2018). By recognizing the value of human resources and investing in
employee development, companies can achieve a competitive advantage in the market. This
underscores the importance of accounting for human resources and developing a framework to include
them in financial statements.

According to Kataria (2022), further exploration of valuation techniques, frameworks, and a

comprehensive examination of their real-world applications is required. Additionally, active
participation from experts in both human resource management and accounting fields is essential in
fostering meaningful discussions surrounding valuation principles and their effective integration into
real-world scenarios. Hence, this research aims to assist organizations in understanding the impact and
worth of their human capital investment in accomplishing long-term goals. Investing in human capital
is essential for improving the quality of the firm's foremost assets. Managers who understand HR
accounting thoroughly can make informed decisions regarding talent investment, considering
comparative data on the costs and beneficial effects of investing in human capital.

LITERATURE REVIEW
Accounting Treatment
Barcons-Vilardell et al. (1999) and Khan (2021) have shed light on human resources'
accounting treatment and measurement. Training and selection costs can be classified as capitalized
expenses; however, departure costs should be classified as revenue expenses, according to Barcons-
Vilardell et al. (1999). On the contrary, Khan (2021) identified the cost-based and economic
approaches as two approaches for evaluating human assets. The cost-based approach treats the
amount of money utilized for human resources as both expenses and assets. The costs can be beneficial
in the current accounting period, while the assets are projected to generate future profits for the
company. In contrast, the economic approach values the ongoing worth of individual benefits to be
provided on a continuous basis. This approach assesses the future payment of a specific working group
until retirement and discounts it to show the current worth of future pay (Amahalu et al., 2017).
Overall, these approaches provide managers with tools to evaluate the effect of their human capital
investment and to make informed decisions about talent investment. By capitalizing on the value of
human resources, businesses can improve the quality of their most critical assets and ultimately
improve their profitability.
Disclosure
The adoption of US GAAP and IFRS is increasing rapidly in the worldwide financial accounting
setting. This trend could simplify the assessment of different valuation and reporting standards. As a
result, non-traditional metrics, such as the valuation of human resources determined by employing
HRA methodologies, may be included in future financial statements (Bullen & Eyler, 2010).
Incorporating HRA data in financial statements can have a significant impact on investors' decisions

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to invest in equity. Therefore, users may choose to opt out of financial statements and financial
statement notes if HRA information is not included. HRA statistics can also inform internal
management decisions and demonstrate that a company's investment in human resources pays off in
the long run (Avazzadehfath et al., 2011).
In Bangladesh, al Mamun (2009) investigated the extent of HRA disclosure in 55 randomly chosen
enterprises and found that, on average, companies disclose 25% of all HRA components. The study
also showed a strong correlation between HRAD and firm size, company category, and profitability,
while company age did not affect HRAD. Whereas, in Pakistan, Ullah et al. (2020) conducted a study
on 96 publicly traded firms listed on the KSE-100 Pakistan Stock Exchange to assess the effect of
HRAD on financial outcomes. According to the study, HRA disclosure has a significant positive
influence on a company's success, as evaluated by return on assets. The study also considered the
control and independent variables of company size, financial leverage, and foreign ownership, which
further validated the positive correlation between HRAD and firm performance.
Empirical Studies
In bibliometric analysis, Bhooshetty (2023) explored 2438 publications related to HRA. The highest
number of articles were published in 2020, exceeding 4000. Also, the USA was the most productive
and impactful country with the highest number of articles. The conclusion underscores the importance
of suggesting greater standardization and consistency in the metrics used for reporting. Furthermore,
integrating the fields of human resource accounting, behavioral finance, and entrepreneurship gives a
holistic technique for delving into the impact of psychological factors on entrepreneur success. This
approach yields significant wisdom for those in the entrepreneurial realm, as well as for researchers
and policymakers interested in this domain (Borah, 2023).
KS (2022) analyzed the impact of HRA on managerial performance. The research applied the sample
T-test and percentage analysis on the 50 responses by HR professionals. The findings reveal a
substantial influence and remarkable efficacy of HRA methods on managerial performance and the
organization's overall efficiency. In light of these outcomes, it was suggested that adopting the
mandatory utilization of HRA could lead to a more equitable representation of business appraisal,
consequently fostering the holistic advancement of the enterprise. In the recent research conducted by
Lukman & Abdulrasaq (2023), some intriguing findings came to light. It turns out that human resource
practices have a substantial impact on various aspects of a company's performance, such as earnings
per share, turnover rates, and return on capital employed. The research goes even further,
recommending that organizations consider embracing a cultural shift that places a high value on
education, training, and continuous retraining for their workforce. This could lead to a significant
enhancement in overall performance levels.
Further, two studies were conducted on oil and gas companies in Nigeria to assess the influence of
Human Resource Accounting (HRA) on financial outcomes. Odunayo & Festus (2020) examined the
relationship between HRA and accounting conservatism in oil and gas companies. Their research
revealed that wages and salaries, pensions and retirement benefits, and staff numbers all had
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statistically significant combined effects on accounting conservatism. However, the number of

employees (NE) coefficient proved to be statistically insignificant, implying that it does not promote
accounting conservation. In a separate study, Lambe et al. (2021) evaluated the impact of training and
development costs on the financial outcomes of publicly traded oil and gas firms in Nigeria. According
to the study, these expenses had a significantly positive impact on financial outcomes and minimized
inefficiencies in productivity. The study utilized EViews software for statistical analysis.
Several studies have shown a positive correlation between Human Resource Accounting (HRA) and
the maximization of shareholder wealth. In manufacturing firms, it has been demonstrated that
properly accounting for human capital expenditures and compensating employees well can lead to
higher performance levels and a positive return on investment (Davies, 2018). Godwin & Udeh (2021)
conducted a study on non-financial service companies publicly traded on the Nigerian Stock Exchange
to investigate the impact of HRA on performance. The study found that the cost of staff training and
development had a substantial positive influence on earnings before interest, taxes, depreciation, and
amortization (EBITDA), but did not significantly affect return on capital employed (ROCE). However,
an increase in personnel had a significant positive influence on ROCE, indicating that investing in
human capital can be beneficial for the financial performance of non-financial service firms.
Studies have also found a beneficial relationship between Human Resource Accounting (HRA) and
financial outcomes. Alekhya & Lakshmi (2020) suggest that HRA is significantly associated with
growth metrics, including revenues and net income. Asika et al. (2017) found that wage increments,
increases in staff level, and retirement perks positively impact organizational profitability, and
recommend that a financial reporting standard for HRA be adopted. In service-oriented organizations,
human resources are considered the most valuable asset. Amahalu et al. (2017) examined the influence
of HRA on the financial outcomes of telecommunication companies listed on the Nigerian stock
exchange. The study found that HRA had a significant and positive impact on Return on Equity, Return
on Assets (ROA), and Return on Capital Employed (ROCE), indicating that accounting for human
resources in financial reporting can lead to better financial performance.
Some researchers have focused on the relationship between HRA and financial outcomes, while others
have examined the impact of HRA on performance measures. For instance, Salawudeen & Suleiman
(2018) reported a favorable relationship between the cost of training and development, the quantity of
personnel, and performance measures in 18 manufacturers of consumer goods listed on the Nigerian
Stock Exchange. Kumar & Awasthi (2018) and Dhar et al. (2017) conducted conceptual research and
concluded that investing in human resources has consistently improved organizational performance.
On the other hand, Ofurum & Adeola (2018) examined data from nine service companies listed on the
Nigerian Stock Exchange and revealed that employees were not sufficiently compensated, leading to
a minimal impact on operating profit and return on capital employed. They suggested that management
should adequately compensate staff and make retirement benefits appealing to recruit the best minds
to their organizations.

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Marimuthu et al. (2009) studied the literature on human capital as well as performance and found that
human capital development improves firms’ innovativeness and performance. Research emphasizes
that human capital is a worthwhile asset for organizations. Investments made in this area can boost
performance and yield financial gains. Chaudhry & Roomi (2010) conducted an exploratory study in
Pakistan and found that HRA approaches can be useful for evaluating capital investment, and an
enterprise's investment in human resource development programs significantly influences the firm's
net income. Similarly, Souza & Rohit (2021) found that expenses related to employee recruitment and
training have a significant positive impact on the net income and return on equity of durable consumer
companies listed on NSE. Edom et al. (2015) focused their research on the impact of HRA on the
profitability of Access Bank of Nigeria Plc. The researchers collected secondary data from the bank
and concluded that the bank's profit was significantly correlated with its outlays on training and
development programs, but the number of personnel had no significant impact on the bank's
profitability.
To understand the mediating role of human resource between Corporate Entrepreneurship and
Organizational Performance, Dr. Muhammad Zia-ur-Rehman et al. (2020) conducted research on the
textile sector of Pakistan. The results of the research showed full mediation and suggested to improve
the skills, knowledge, and experience of the human resource. The research also emphasizes the linkage
between the importance of human resources and its impact on organizational performance. Overall,
these studies suggest that investing in human capital development can have a considerable beneficial
influence on a company's financial outcomes, but adequate compensation and appealing retirement
benefits are also necessary to recruit and retain talented employees.
Conceptual Framework
Assessing profitability is crucial for any company to thrive in the long term. According to Hofstrand
(2009) a corporation's primary goal is to make money, and profitability is a vital factor in achieving
that goal. To ensure future profitability, it is crucial to correctly evaluate present and previous
profitability and forecast future profitability. Also, investing in human capital development is an
effective way to safeguard or increase a company's future profitability. However, Flamholtz (1999)
notes that even though the dollars spent on human capital development may create profits beyond the
current period, they are still counted as incurred costs for the year. This means that management must
be willing to invest in human resources, even if it decreases present earnings drastically, to ensure
future profitability.
Staff Cost
Staff costs are referred to as the entire amount of compensation, in cash or in-kind, paid to workers for
their services throughout the accounting period, regardless of when the employee is paid (Landefeld
et al., 2010). This compensation comprises salaries, earnings supplements, bonuses, and profits.
Furthermore, earnings supplements include employer payments made on the employee's behalf, such
as contributions to the employee's pension and insurance schemes, as well as government social
security benefits (Ndum & Oranefo, 2021).
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Number of Employees
The performance and profitability of an organization can be significantly impacted by its size. As the
number of employees grows, so does the organization's complexity, demanding a larger requirement
for highly skilled staff as well as more coordination and control effort. According to Becker-Blease et
al. (2010), this can lead to higher costs associated with the management, contracting, and monitoring
of complex operations. Doğan (2013) employed 200 publicly listed firms on the Istanbul Stock
Exchange over four years to analyze the connection between a company's size and profitability. The
study points out a positive link between the number of workers and the return on assets. This implies
that larger workforces correlate with better economic performance. This could mean that despite the
higher costs of managing a larger workforce, the potential benefits from improved performance and
profitability could offset these costs.
Profitability
Profitability is like a yardstick to measure how well a company is doing. It's simply a comparison
between what a company earns and what it spends. The more efficiently a company runs, the more it
earns and spends less compared to its less efficient peers. Managers constantly aim to boost
profitability, which is crucial for company owners (Hofstrand, 2009). The value of a company also
heavily leans on its profitability. Annual cash flow multiples are useful tools for analyzing a company's
net cash flow (Lambe et al., 2021). Return on assets (ROA) is yet another measure for assessing the
firm's financial management and profitability. Companies that have higher ROA are better at handling
their finances and generating profits, while a lower ROA indicates room for improvement. The ROA
is calculated using the following formula:
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
𝑅𝑂𝐴 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
Another significant profitability indicator is the Return on Capital Employed, or ROCE. It evaluates a
company's ability to turn its capital into profit. It's a dependable metric because it juxtaposes earnings
with both capital and liabilities. This makes it a go-to choose for investors when they're deciding
whether to invest in a company or not. It's essentially a key pointer of a company's return on
investment. Indeed, Godwin & Udeh (2021) state that ROCE is one of the most precise measures of a
firm's outcomes, and therefore, is a decisive element in investment decisions. The ROCE is calculated
using the following formula:
𝐸𝐵𝐼𝑇
𝑅𝑂𝐶𝐸 =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Figure 1 shows the relationship between the input variables (like Staff Cost and Number of
Employees) and the output variable (Profitability). The stand-ins for the output variables are ROA and
ROCE, which are widely recognized indicators to assess a company's profitability. The goal of
analyzing this relationship is to have a better understanding of the elements that impact a company's
profitability.
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Figure 1. Conceptual Framework

This study intends to help decision-makers comprehensively assess the impact of human capital
expenditures and evaluate the link between organizational performance and human resource
development. Additionally, the study aims to identify gaps in the existing literature for future research
and to create a quantitative framework for measuring the impact of HRA on profitability. The
following hypotheses have been developed in order to achieve these goals:
Ho1: Staff Cost has no significant effect on Return on Asset.
Ho2: Number of Employees has no significant effect on Return on Asset.
Ho3: Staff Cost has no significant effect on Return on Capital Employed.
Ho4: Number of Employees has no significant effect on Return on Capital Employed.

DATA AND METHODOLOGY

The investigation conducted an ex post facto research design, utilizing all textile firms listed
in three sectors of the Pakistan Stock Exchange: composite, spinning, and weaving, as the study
population. The total number of firms in these sectors was 75 as of 4th August 2022. A critical
sampling strategy was adopted to identify the enterprises for the study based on the availability of
annual financial reports. The final sample size consisted of 73 companies for the period spanning
2017-2021. To empirically investigate the relationships between the variables, the study utilized the
panel regression analysis method. The data collected were analyzed using EViews 9.
Model Specification
Mathematically, P = f (SC, NOE), i.e., profitability is a function of staff cost and a number of
employees. Therefore, the model for the study is expressed as follows:

𝑅𝑂𝐴𝑖𝑡 = 𝛽𝑜 + 𝛽1 ∙ 𝑙𝑜𝑔 𝑆𝐶𝑖𝑡 + 𝛽2 ∙ 𝑙𝑜𝑔 𝑁𝑂𝐸𝑖𝑡 + 𝜀𝑖𝑡 (1)

𝑅𝑂𝐶𝐸𝑖𝑡 = 𝛽𝑜 + 𝛽1 ∙ 𝑙𝑜𝑔 𝑆𝐶𝑖𝑡 + 𝛽2 ∙ 𝑙𝑜𝑔 𝑁𝑂𝐸𝑖𝑡 + 𝜀𝑖𝑡 (2)

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Where;

βo = intercept of the regression

β1 , β2 = Coefficient (Slope of the regression line)

ε = error term
ROA = Return on Asset
ROCE = Return on Capital Employed
SC = Staff Cost
NOE = Number of Employees

RESULT AND DISCUSSION

Descriptive Statistics
Table I presents the descriptive statistics for all the factors examined in the research. To ensure
the credibility of the statistical analysis results, a level-log regression model is utilized to make the
data as "normal" as possible.
Table I: Descriptive Statistics
ROA ROCE SC NOE
Mean 0.028072 0.064844 8.568534 2.960186
Median 0.027108 0.111252 8.657679 3.046885
Maximum 0.978076 4.554833 10.06157 4.287107
Minimum -0.780854 -6.480426 5.661288 0.000000
Std. Dev. 0.091611 0.518754 0.786124 0.764784
Skewness 1.090887 -4.549527 -1.411732 -1.498613
Kurtosis 50.07038 89.08239 6.144237 6.199479

Jarque-Bera 33768.28 113955.6 271.5930 292.3046

Probability 0.000000 0.000000 0.000000 0.000000

Sum 10.24640 23.66797 3127.515 1080.468

Sum Sq. Dev. 3.054910 97.95458 224.9487 212.9017

Observations 365 365 365 365

The analysis indicates that the dataset exhibits a wide spread of values from the mean for ROA and
ROCE, which could be attributed to the presence of negative values. On the other hand, SC and NOE
demonstrate less dispersion from the mean value. The skewness of these variables also indicates that
ROA has a long right tail, while ROCE, SC, and NOE have long left tails. Additionally, all
distributions are leptokurtic. The Jarque-Bera test's null hypothesis presumes that the data exhibits a

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normal distribution, and the results reveal that the null hypothesis is rejected, with all variables having
probability values below 0.05.
Descriptive Statistics
The goal of regression analysis is to figure out the interrelation of the variables. Due to this, the
influence of numerous concurrent effects on a single dependent variable is determined (Sykes, 1993).
Table II: Breusch-Pagan Test (Model 1)

Test Hypothesis
Cross-section Time Both

Breusch-Pagan 27.86855 88.55897 116.4275

(0.0000) (0.0000) (0.0000)

Table III: Breusch-Pagan Test (Model 2)

Test Hypothesis
Cross-section Time Both

Breusch-Pagan 58.43572 0.123967 58.55969

(0.0000) (0.7248) (0.0000)

The Breusch-Pagan test assesses the heteroscedasticity of errors in a regression model. The probability
values in Table II and Table III are below 5%, indicating that heteroscedasticity exists in both models.
Therefore, the null hypothesis of the Breusch-Pagan test is rejected, implying that the Pooled Least
Square (PLS) approach is more appropriate than the random effect model.

Table IV: Hausman Test (Model 1)

Test Summary Chi-Sq. Statistic Chi-Sq. d.f. Prob.

Cross-section random 7.204808 2 0.0273

Table V: Hausman Test (Model 2)

Test Summary Chi-Sq. Statistic Chi-Sq. d.f. Prob.

Cross-section random 11.873008 2 0.0026

/

The results of the Hausman test demonstrate that the p-value for both models is below 5%, as displayed
in Tables IV and V. Consequently, the null hypothesis affirms that the random effect model is more
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suitable than the fixed effect model is rejected. Therefore, the fixed effect model is estimated using
the dummy variable technique.

Table VI: Panel Regression Result (Fixed Effect)

Dependent Variable: ROA
Method: Panel Least Squares
Date: 09/29/22 Time: 22:26
Sample: 2017 2021
Periods included: 5
Cross-sections included: 73
Total panel (balanced) observations: 365

Variable Coefficient Std. Error t-Statistic Prob.

C -1.308726 0.292103 -4.480351 0.0000**

SC 0.228660 0.047347 4.829430 0.0000**
NOE -0.210284 0.046588 -4.513671 0.0000**

Effects Specification

Cross-section fixed (dummy variables)

R-squared 0.408820 Mean dependent var 0.028072

Adjusted R-squared 0.257967 S.D. dependent var 0.091611
S.E. of regression 0.078915 Akaike info criterion -2.059946
Sum squared resid 1.806001 Schwarz criterion -1.258597
Log likelihood 450.9402 Hannan-Quinn criter. -1.741480
F-statistic 2.710059 Durbin-Watson stat 2.252922
Prob(F-statistic) 0.000000
** shows highly significant result at 1%

The analysis uncovers that the predictor variables, namely Staff Cost and Number of Employees, are
responsible for 41% of the variations in return on assets. The error term accounts for the remaining
59%, based on the R2 value. Furthermore, the F-statistic shows a statistically significant simultaneous
impact of the predictor variables on the dependent variable, with a p-value of less than 0.05.

The constant value of -1.308 represents changes in ROA if the independent variables (SC and NOE)
remain constant. The coefficient of log of staff cost (SC) is 0.23, which indicates that a percentage rise
in staff cost leads to a 23% rise in ROA. In contrast, the -0.21-coefficient value of the log of NOE
suggests that a percentage increase in the number of employees could result in a 21% decrease in
ROA. The p-values for both explanatory variables are highly significant, and therefore, the null
hypotheses Ho1 and Ho2 are rejected.

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Table VII: Panel Regression Result (Fixed Effect)

Dependent Variable: ROCE
Method: Panel Least Squares
Date: 09/29/22 Time: 22:33
Sample: 2017 2021
Periods included: 5
Cross-sections included: 73
Total panel (balanced) observations: 365

Variable Coefficient Std. Error t-Statistic Prob.

C -6.357149 1.578632 -4.026999 0.0001**

SC 1.095770 0.255881 4.282346 0.0000**
NOE -1.002354 0.251780 -3.981074 0.0001**

Effects Specification

Cross-section fixed (dummy variables)

R-squared 0.461505 Mean dependent var 0.064844

Adjusted R-squared 0.324096 S.D. dependent var 0.518754
S.E. of regression 0.426485 Akaike info criterion 1.314465
Sum squared resid 52.74802 Schwarz criterion 2.115814
Log likelihood -164.8898 Hannan-Quinn criter. 1.632931
F-statistic 3.358626 Durbin-Watson stat 2.509849
Prob(F-statistic) 0.000000
** shows highly significant result at 1%

According to the R2 value, variations in the predictor variables (SC and NOE) account for 46% of the
total variations in return on capital employed, while the error term accounts for the remaining 54%.
The F-statistic's p-value is below 0.05, suggesting that the predictor variable's collective impact on the
dependent variable is statistically significant. The constant value of -6.36 is autonomous and represents
changes in the return on capital employed if the independent variables (SC and NOE) are maintained
constant.
The coefficient of log of staff cost (SC) is 1.10, which shows that a percentage rise in staff cost might
result in a 110% increase in ROCE. At the same time, the -1.00-coefficient value of the log of NOE
indicates that a percentage rice in the number of employees might result in a 100% decrease in ROCE.
Since the p values of both explanatory variables are highly significant, the null hypothesis, H o3 and
Ho4, are rejected.

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CONCLUSION AND POLICY IMPLICATION

The sole aim of this research was to investigate how staff costs and the number of employees
impact the financial outcomes of publicly traded textile enterprises in Pakistan. The study utilized staff
costs as well as the number of employees as indicators of human resource efficiency and return on
assets as well as return on capital were used as indicators of financial performance. The researchers
employed panel regression analysis to explore the relationship between the variables. The study
collected data from the annual financial statements of 73 firms over a five-year period from 2017 to
2021.
The study results demonstrate that staff costs have a significantly positive impact on both return on
assets and return on capital employed. In contrast, the number of employees have a significantly
negative effect on both return on assets and return on capital employed. This implies that investing in
employees leads to increased productivity in the organization. It is, therefore, important for
organizations to train and develop their employees and provide them with health, safety, and
retirement benefits to achieve organizational goals.
The study also hypothesizes that the number of employees is being depleted in various physical labor
tasks, which aligns with the effective technological advancements in the textile sector. The use of
modern technology reduces the need for a large number of physical laborers, and hence the number of
employees decreases. Therefore, it is essential for textile firms to embrace technological advancements
and adapt to changes in the sector to remain competitive and improve financial performance. The study
suggests that the HRA standards should be incorporated, and the companies should make proper
disclosures to understand their interest in the betterment of the employees.
As we step back and look at the big picture, it's clear that certain rules can create a big positive change.
Following Human Resource Accounting (HRA) standards could bring valuable advantages. Also,
being open about how they support employees' well-being can improve a company's reputation. To
sum up, our exploration of textile companies' financial well-being has shown important ways to grow.
Treating the employees well and giving them power is extremely important. When combined with
being open to new technology, these actions not only lead to success but also a better and more
advanced future.

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