Value Added Human Capital and Firms’ Financial Performance
Ria Arum Oktavina and Sedianingsih Sedianingsih
Universitas Airlangga, Jl. Airlangga No. 4 – 6, Surabaya, Jawa Timur, Indonesia
Keywords: Firm’s Financial Performance, Intellectual Capital, Return on Asset (ROA), Value Added Human Capital
(VAHU).
Abstract: This study aims is to analyze the influence of value added human capital (VAHU) as one of the intellectual
capital components on firms’ financial performance. Samples used are 299 manufacturing companies listed
in Bursa Efek Indonesia (BEI) that complies with certain criteria in the period of 2013-2015. This research
uses a quantitative approach with linear regression analysis for the hypothesis test. The result shows that
value added human capital is influencing positively and significantly on firms’ financial performance. It is
proved that total expenditures for employees, including salaries, allowances, bonuses, education and
training has the ability to create an added value, which then increase the firms’ financial performance that is
measured by ROA. It provides a practical contribution for companies as one of the considerations in human
capital decision-making.
1 INTRODUCTION
Current competition era with fast changes in the
quality of technology, the impacts of global markets,
and closed competition can create threats while
providing opportunities for companies (Hosseini and
Sheikhi, 2012). Therefore, it is necessary to develop
the business to help maintain and increase the
company’s competitive advantage in the current
global business competition.
Knowledge and expertise are some examples of
soft asset, which is one of the intellectual capital.
Intellectual capital is intangible resources that the
companies use to generate profit and value (Djamil
et al., 2013). Intellectual capital (IC) enables
companies to compete globally and face the
turbulent international environment. The businesses
nowadays need not only tangible assets, but also
intangible assets to gain sustainable competitive
advantages. Broadly speaking, intellectual capital
can be categorized into three; human capital,
structural capital, and relational capital. VAICTM
approach which was triggered by the police (1998)
is often used to assess and measures the intellectual
capital. This approach calculates the efficiency of
intellectual capital value in generating some added
value. Some advantages of this concept are the ease
of data acquisition and the data can be compared
among several companies. Human capital can create
some added value for the company because the
knowledge of the employees is able to create
effectiveness and efficiency to improve the
company’s productivity when responding to changes
in consumer needs. Several previous studies have
already proven the relationship between human
capital as one of the components of intellectual
capital with the company's financial performance
(Chen et al., 2005; Gogan et al., 2016).
The existence of human capital reflects the
company's collective ability to produce the best
solution. Human capital in a company is formed
from human resources it owned. Bontis et al (1999)
describes human capital as the resource of
innovations and strategies realized by brainstorming
in research labs, thinking in the office, composing
new structures, improving personal skills or
developing sales. Based on the knowledge-based
theory, people change their knowledge into routines,
job descriptions, plans, and strategies (Starbuck,
1992) to become the leading role of their business.
The value added human capital coefficient (VAHU)
indicates how much value added has been created by
one financial unit invested in employees (Zeghal and
Maaloul, 2010). VAHU measures the added value
generated by company's human capital. The higher
the VAHU, the more efficient the cost is incurred by
the company to improve employees’ productivity
when managing corporate resources. Effective and
312
Oktavina, R. and Sedianingsih, S.
Value Added Human Capital and Firms’ Financial Performance.
In Proceedings of the 1st International Conference on Islamic Economics, Business, and Philanthropy (ICIEBP 2017) - Transforming Islamic Economy and Societies, pages 312-315
ISBN: 978-989-758-315-5
Copyright © 2018 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved

efficient resource management can create some
added values that will impact on the company’s
profitability and ultimately impact on improving the
company's financial performance.
2 METHOD
The type of data used in this research is quantitative
data. The population of this study is manufacturing
companies listed on the Indonesia Stock Exchange
during the period of 2013-2015. The sample is
selected by using purposive sampling. In the end, we
got 299 manufacturing companies that have met
some criteria. The secondary data sources used in
this research, including the list of manufacturing
companies listed on the Indonesia Stock Exchange
during the period 2013-2015 are from
www.sahamok.com and financial statements of the
companies from www.idx.co.id.
The data collection procedures in this study
consist of literature study and documentation.
Literature study is done by reading and recording
important information, understanding, and reviewing
information from reading sources, while
documentation is obtained from the data acquisition
from the previous secondary data sources.
The method used in this study is a quantitative
method with an explanatory approach that aims to
explain the relationship between variables by using
hypothesis testing. Value added human capital is
measured by using VAICTM method and company's
financial performance is measured using ROA
(Return on Assets), while linear regression analysis
is used to process the data.
Data analysis of linear regression is used to
measure the influence of VAHU on financial
performance, which is depicted on ROA, at
manufacturing company listed in Indonesia Stock
Exchange during the period of 2013-2015. After
that, the data are processed with SPSS program
version 20.0. The regression model in this research
can be written as follows:
Model 1: ROA = a
0
+ a
1
VAHU + e……………… (1)
3 RESULTS AND DISCUSSION
Total manufacturing companies listed on the BEI
during the period of 2013-2015 amounted to 424
companies, but the sample obtained after the
enactment of purposive sampling or sampling with
certain criteria is 299 companies (unbalance
samples). The data are processed using regression
analysis after being tested by using classical
assumptions.
Descriptive statistical results in both variables
can be explained as follows:
Table 1: Descriptive statistical results.
N
Min
Max
Mean
Std.
Deviation
ROA
299
0.0056
79.6825
8.153051
9.3426220
VAHU
299
0.7304
19.3377
2.034988
1.4456455
Valid N
(listwise)
299
Return on Assets (ROA) is the effectiveness of
the company's ability to generate profits by
optimizing the assets owned. Based on the Table, the
highest ROA value of 79.6825 is owned by PT.
Semen Gresik, Tbk in 2015, while the lowest ROA
of 0.0056 is owned by PT. Indofood Sukses
Makmur, Tbk in 2014. The average value of ROA in
all sample companies is 8,153051 with the standard
deviation of 9.3426220. The level of data
distribution on Return on Assets (ROA) has
114.59% level of variation. This shows that the
distribution of ROA values generated by companies
in this research is relatively different
(heterogeneous), with the rate of ROA ratio changes
between manufacturing companies are relatively
different during the observation period. This
indicates that there are differences in the ability of
one company with the others to generate profits with
their assets.
Highest Value Added Human Capital (VAHU) in
this study is amounted to 19.3377, which is owned
by PT Pelangi Indah Canindo in 2014, while the
lowest value of 0.7304 is owned by PT Berlina Tbk
in 2015. The average VAHU value generated in this
research is equal to 2.034988 with a standard
deviation of 1.4456455. The level of data
distribution for companies’ Value Added Human
Capital (VAHU) has a level of variation of 71.04%.
This explains that the distributions of the value of
VAHU generated by manufacturing companies in
this research is homogeneous. The ability of one
manufacturing company to generate some added
values by total employees' expenditures such as
salary, allowances, bonus, education and training
when compared to other company is relatively the
same.
Value Added Human Capital and Firms’ Financial Performance
313

Table 2: Result of the regression analysis.
Model
Unstandardized
Coefficients
t
Sig
B
Std.
Error
(Constant)
-5.632
0.191
-29.433
0.000
VAHU
1.320
0.175
7.551
0.000
Based on result of regression analysis, we can
establish an equation as follows:
ROA = - 5,632 + 38,431 VACA + ε
Based on Table 2, we can draw a conclusion that
VAHU affects the companies’ financial performance
that is measured by ROA. The significant value of
VAHU which is 0.000 is smaller than the error rate
of 0.05 or 5% shows that VAHU has a significant
effect on financial performance at 95% confidence
level.
VAHU’s (value added human capital) regression
coefficient value is 1.320. It means that any increase
in the value of human capital will make the value of
ROA as a proxy of financial performance also
increase by 1.32 times with the assumption that
other variables are constant. Based on that result, it
can be concluded that VAHU can improve ROA and
will impact positively to the companies’ financial
performance. The significance value and regression
coefficient above show that VAHU has a significant
and positive effect on firms’ financial performance
and. Therefore, a decision can be made that
hypothesis 1 (one) which states that there is a
positive relationship between value added human
capital (VAHU) on the firms’ financial performance
is not rejected.
This result is consistent with previous studies by
Chen et al. (2005) and Gogal et al. (2016). The
results of these studies also prove that VAHU has a
positive and significant influence to the companies’
financial performance, which is depicted by ROA.
VAHU generated in this research is a value
added from expenditures for the human capital in a
company. Such expenses include salaries, benefits,
and other expenses such as education and training
provided to employees. Based on the results of this
study, it can be concluded that VAHU is a
manifestation of corporate expenditures for human
capital, and VAHU is also able to generate some
added values while improving the sample
company’s financial performance. These
expenditures create some added values because they
increase employees’ knowledge, motivations, and
collective abilities in producing the best solution for
the company.
The importance of the role of human capital is
believed to be associated with the company's goal to
generate profit. Good knowledge will increase cost
efficiency because more decisions will be made by
considering their costs and benefits. In addition,
companies will be able to create better products
through innovations generated by human capital,
thus leads to increasing company’s sales and profit.
Therefore, human capital is believed to be one of the
company’s intangible resources that can improve the
financial performance of the company.
4 CONCLUSIONS
Value Added Human Capital (VAHU) has a positive
and significant impact on the financial performance
of the 299 sample companies, which is projected in
their Return on Assets (ROA). The result of this
study supports the previous studies done by Chen et
al. (2005) and Khanqah et al. (2012).
There are several research limitations in this
study. First, there are many manufacturing
companies listed on the Indonesia Stock Exchange
that do not disclose the value of intellectual capital
they owned. Measurement of the appropriate
intellectual capital needs accurate data to measure
VAHU (value added human capital) as one of the
components of intellectual capital. Other than that,
only ROA (Return on Assets) is used to measure
companies’ financial performances, so we only able
to assess the companies’ ability to generate profits
using assets owned.
It is the author's hope that many manufacturing
companies will disclose their value of intellectual
capital, as it will also help the investors to make
their investment decisions. The disclosure of
company’s intellectual capital to the public will
enable the market to assess the actual performance
of the company's intellectual capital, and it will
improve the market perception on the overall
performance of the firm. In addition, independent
variables should be added as a proxy to the
company's financial performance, so it can reflect
the influence of actual intellectual capital on the
company's financial performance.
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314

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