The Use of Intellectual Capital Information For Investment Decisions in Nigeria

THE USE OF INTELLECTUAL CAPITAL INFORMATION FOR
INVESTMENT DECISIONS IN NIGERIA

ABSTRACT
This study examines the necessity of using intellectual capital

information for investment decisions in Nigeria. This study discussed
the relevance and measurements of intellectual capital of companies. It
highlighted the various measures that can be used to determine the
intellectual capital of the company. The objective of this research is to
show the importance and impact of intellectual capital information on
investment decisions in Nigeria. This research also examined critically
the extent to which the understanding and use of investment appraisal
techniques and intellectual capital information serve as a good index for
financial health and wealth of an organization. The literature review
discusses the origin, classification, types, measurement and impact of
intellectual capital in an organization. The data for analysis were
collected from primary and secondary sources. Data collected through
the questionnaires were analyzed using the chi-square method. Finally,
a major finding of this research work is that the use of intellectual
capital information along with financial investment analysis tool will
assist investors, consultants and financial analysts to give informed
judgement and to make sound optimal investment decisions in Nigeria.
This is what will help investors in achieving the objective of wealth
maximization.
TABLE OF CONTENTS
Title page
Certification
Dedication
Acknowledgement
Abstract
Table of contents
Page
Chapter One
1.1 Background of the Study
1.2 Statement of Problem
1.3 Purpose of the Study
1.4 Research Questions
1.5 Statement of Hypothesis
1.6 Scope of the Study
1.7 Significance of the Study
1.8 Definition of Terminologies
References
Chapter Two: Literature Review

2.0 Introduction
2.1 Brief History of Intellectual Capital
2.2 Definitions of Intellectual Capital
2.3 The drivers for the Interest in Intellectual Capital
2.4 Classifications and types of Intellectual Capital
2.5 Measurement of Intellectual Capital (Human capital)
2.6 Investment Decisions
2.7 Investment Decisions
2.8 Classifications and types of Investment Decisions
2.9 Investment Decision Analysis
2.10 Fundamental Analysis
2.11 Financial Ratios Analysis
2.12 Limitation of Financial Ratios Analysis
2.13 Impact of Intellectual Capital Information on Investment
decisions
References
Chapter Three: Research Methodology

3.0 Introduction
3.1 Research Design
3.2 Population and Sample
3.3 Data type
3.4 Restatement of Research Questions
3.5 Research of Hypotheses
3.6 Instrumentation
3,7 Method of Instrument Administration
3.8 Method of Data Presentation and Analysis
References
Chapter Four: Data Analysis and Interpretation

4.0 Introduction
4.1 Analysis of Demographic Data
4.2 Test of Hypothesis
Chapter Five: Summary, Conclusions and Recommendations

5.0 Introduction 5.1
Summary 5.2
Limitations of the Study 5.3
Conclusions 5.4
Recommendations 5.5
Other Recommendations
Bibliography
Appendix
CHAPTER ONE
1.1 BACKGROUND OF THE STUDY

The decision whether or not to invest in a company requires the
investors to understand the criteria for assessing the viability, stability
and long term prospect of the company. The assessment is usually
based majorly on the information provided in the financial statement.
A relationship entered into with the users of their funds by the

investors makes it imperative for them to inquire not only about the
past, present and future of the organization's financial position, but
also about the intellectual capital of the company. This will bring
about informed and optimum investment decisions.
This study seeks to highlight the use of intellectual capital information

for investment decisions in Nigeria.
Intellectual capital is a knowledge that can be exploited for some

money-making and other useful purposes. The term combines the
ideas of the intellect or brain-power with economic concept of capital,
the savings of entitled benefits so that they can be invested in
producing more goods and services.
In Nigeria, people often under play the impact and significance of

intellectual capital information on their investment decisions. Creative
and progressive ideas can only be proffered by qualified personnel
which will boost the successful planning of the organisation that is,
man-power form the back bone of any organisation so as to remain
competitive and responsible to the capital providers and the dynamic
environment.
1.2 STATEMENT OF PROBLEM
It is a common practice in Nigeria for investors to base their
investment decisions on the analysis of the financial information
obtained from the company's financial statements and reports by way
of computing financial ratios and other tools of analysis are used.
On the long run, not many took the accurate decisions as during the
period of financial difficulties or economic crisis the financial position
of these companies tend to melt down and at the receiving end is the
investor who loses substantially.
What the investors fail to consider as part of their analysis for making
investment decisions is the intellectual capital information of such
companies. It is a general fact that one of the inherent drawbacks of
financial ratios is its failure to reveal the company's intellectual
capital capacity.
The failure of so many investment options in Nigeria posed a lot of

challenges to investment analysts and investors. This is why there is
need to look beyond the financials in analyzing investment options.
Finding solution to this problem is what informs the research on the
use of intellectual capital information for investment decisions in
Nigeria.
1.3 PURPOSE OF THE STUDY

This study aims to find out and analyze the use of intellectual capital
information for investment decisions in Nigeria. The purpose can be
summarised below:
i. To determine the relevance of intellectual capital information on
investment decisions in Nigeria.
ii. To know the change and relationship between financial
information and intellectual capital information.
iii. To show the importance of intellectual capital information for
iv. To supplement and complement the existing knowledge of the
users of financial information such as managers and financial
analysts on the usefulness of intellectual capital information as
a guide determine viability and sustainability of investment.
v. To illustrate and point out the extent to which the
understanding of investment appraisal and intellectual capital
information serve as a good indices for the financial health and
wealth of a company.
1.4 RESEARCH QUESTIONS

i. What is the usefulness of intellectual capital information?
ii. How is intellectual capital information measured or determined?
iii. Do investors really know what intellectual capital is all about?
iv. How popular is the use of intellectual capital information by
investment analysts for analyzing investment option in Nigeria?
v. What are the relevant of intellectual capital information to
investment decisions?
vi. How important is the use of intellectual capital information for
evaluation of company's performance?
1.5 STATEMENT OF HYPOTHESES

The following are to be tested ad verified in the course of this study:
HYPOTHESIS 1
H0: Intellectual capital information is not popularly used in Nigeria
for investment decision making.
H1: Intellectual capital information is popularly used in Nigeria for
investment decision making.
HYPOTHESIS 2
Ho: Intellectual capital cannot be easily measured or determined
Hi: Intellectual capital can be easily measured or determined.
HYPOTHESIS 3
Ho: Intellectual capital information is not relevant for investment
decisions in Nigeria.
Hi: Intellectual capital information is relevant for investment
1.6 SCOPE OF THE STUDY

The scope of this study will be limited to the use of intellectual capital
information for the investment decisions in Nigeria. The focus will also
be on financial investments. Lagos being the commercial capital of
Nigeria will be covered by this study.
1.7 SIGNIFICANCE OF THE STUDY

Because of the importance of human and intangible assets to the
organizations' success, we can infer that a lot of rigours are faced in
determining the measurement of intellectual capital information of
companies. This study will assist managers, investors and investment
analysts to have a better perception of the importance of human and
intangible assets to the organisations. Many sub-optional decisions
which they ignorantly made will be avoided.
Summary of these significance include:

i. To assist financial analysts to give appropriate and optimal
advice to their clients.
ii. To help the general public make rational and viable investment
decisions
iii. To enable the investors in the stock exchange market to
compare alternative investment analysis criteria and not just
companies financials.
iv. To assist firms in measuring the improvements in their key
corporate performances.
v. To assist companies in determining their intellectual capital
capacity, its viabilities, its efficiency and effectiveness towards
achieving their set goals and objectives.
1.8 DEFINITION OF TERMINOLOGIES

1. Capital: This is the amount of resources committed to the
operations of a business enterprise.
2. Intellectual Capital: This is the combination of all human
assets, individuals and intangible assets that are
employed in the productive enterprise.
3. Intangible Assets: These are properties of an enterprise that
cannot be seen or touched, but can be felt and impact on the
profitability of an enterprise.
4. Assets: These are the properties owned by an individual, group
of persons or a company which have financial value and can be
disposed off for a consideration.
5. Human Assets: These are the value of the productive capacity
of people in a company,
6. Sub-optimal Decision: These are decisions by sectional
manager of an organization to benefit that section or purpose,
but have negative impact to the organisation in general.
7. Optimal Decisions: These are rational decisions made to affect
and impact positively on the organisation as a whole. It is the
decision that brings about efficient and effective use of
productive resources and capital.
8. Investment Decision: This is the identification, analysis and
selection of the best investment option among various
competitive investment alternatives.
9. Financial Investment: This is the investment in companies'
common stocks, preferred stocks either through the stock
exchange market or other alternative means.
10. Financial Statement: this is the totality of statements and
reports prepared by an organisation to elicit the financial
position of the organisation as at a particular date. It usually
include the profit and loss account, balance sheet, cash flow
statement etc.
11. Investment Analysts: these are professionals whose job
is to analyse the prospect and viability of investment options
and give professional advice to prospective investors (clients),
they include stock brokers, bankers, accountants, economists,
e.t.c.
REFERENCES
Asika N. (1991), Research Methodology in Behavioral science,

Longman Nigeria Pic, pp 90-109.
Caddy I., (2002) "Intellectual capital: recognizing both assets arid
Liabilities. Journal of Intellectual capital pp. 129 -146
Hendrisks J. A, Impact of human resource accounting information
on stocks investment decision "An empirical study" Account review,
April 1996. pp. 292-325.
ICAN Study Pack (2006), Business Communication and Research
Methodology, VI Publication , Lagos.
Pandey I. M.? (2005) Financial Management, ninth edition. Vikas
Publishing House PVT LTD, New Delhi, India
Perry, Guthrie J., "Intellectual capital literature review
Management, reporting and management" Journal of Intellectual
capital pp. 155-176
Phillips J.J., (2005) Measuring intellectual capital in action series,
ASTD publishing, USA
Phillips J.J., (2000) "Intangible assets and value creation" Journal of
Intellectual capital.
CHAPTER TWO
LITERATURE REVIEW
2.0 INTRODUCTION
The rise of the "new economy" one principally driven by information
and knowledge is attributed to the increased prominence of
intellectual capital (1C) as a business and research topic. Intellectual
capital is implicated in recent economic, managerial, technological,
and sociological developments in a manner previously unknown and
largely unforeseen. Whether these developments are viewed through
the filter of the information society, the knowledge based economy; the
network society or innovation, there is much to support the assertion
that intellectual capital is instrumental in the determination of
enterprise value and national economic performance.
Substantial differences between book values and market values

indicate the presence of assets not recognized and measured in the
companies' balance sheet. Intellectual capital assets account for a
substantial proportion of these discrepancies. At present, companies
are not required to report on intellectual capital assets, which leave
the traditional accounting system ineffective for measuring the true
impact of such intangibles.
This chapter seeks to review relevant literatures on intellectual

capital: its background and meaning, relevance and measurements.
Also literatures on financial investment decisions are reviewed and the
impact of intellectual capital information on investment decisions is
discussed.
2.1 BRIEF HISTORY OF INTELLECTUAL CAPITAL

Although the concern for intangible assets and their values traced
back many years, the topic of intellectual capital (1C) gained
popularity in the lite 1960s and early 1970s in the form of Human
Resource Accounting HRA). (flamholtz, 1985). Although interest
diminished in the late 1980s ^nd throughout the 1990s. HRA was
originally defined as a process to identify, measure, and communicate
information about human resources :o facilitate effective management
within an organization. HRA was an extension of accounting
principles, matching costs and revenues and organizing data to
communicate relevant information in financial terms. With HRA
employees are viewed as assets or investment for the organization.
Method of measuring the assets is similar to those of measuring other
assets.
However, the process includes accounting for the condition of human

capabilities and their values. Three important questions placed HRA
under scrutiny are: "are human being assets? What cost should be
capitalized? What methods are most appropriate for establishing
values for employees with eventual allocation of such values to
expenses (cascio, 1995)?
In 1991, Thomas Stewart, a member of the editorial board at "fortune

Magazine" wrote an article on brain-power, which introduced the idea
that intellectual capital had much to do with profitability and success,
(Stewart, 1991) since then, dozens of books have been written and
hundreds of articles in professional Journals dominate print spaces
on ".his critical issues.
2.2 DEFINITIONS OF INTELLECTUAL CAPITAL

Many writers have attempted to define the concept of 1C, depending
on the perspective they are looking at, none of this has been all
encompassing. For better understanding of the concept, review will be
made to some of these key definitions; Intellectual capital (1C) is the
intangible asset that can be converted to profit. Intellectual capital is
the combination of all human assets (individual's knowledge and
skills) and intangible assets that are employed in a productive
enterprise. Intellectual capital is knowledge that can be used and
exploited for some money making or other useful purposes. The term
combines the ideals of the intellect or brain-power with the economic
concept of capital. 1C include individual or group of employees whose
knowledge and skills is deemed critical to a company's continued
success. This last definition seems to be more comprehensive and
would be adopted for this research.
2.3 THE DRIVERS FOR THE INTEREST IN INTELLECTUAL

CAPITAL
This section seeks to explain those factors or events that necessitated
the development of research into 1C. Major changes in the economy
and organizations have created the tremendous interest in 1C. In the
last century, the economy has moved from agricultural to industrial
and later :o knowledge-based economy. (Saint-orge, 2000). As shown
in figure 1, the knowledge era is perhaps the most far-reaching and
explosive in the economic eras.
During the agricultural era, the focus of production was on land and
how to make the land more productive. During the industrial age
which dominated much of the first half of the 20th century, the focus
of production was on how efficiency and profits can be generated
through the use of machinery. In the knowledge economy, the focus of
production is on the human mind and knowledge is use to build a
more productive and efficient economy. The economy has moved from
focusing on exploiting natural resources and the use of machines to
focusing on mining our minds. An earlier definition of intellectual
capital is the intangible assets that can be converted to profits. That
definition created a. tremendous interest in understanding the actual
impact of the knowledge contribution of successful organizations.
2.4 CLASSIFICATIONS AND TYPES OF INTELLECTUAL CAPITAL
When it comes to classifying intellectual capital, there is no absolute
agreement on the specific categories. The intangible assets are
important and varied. A large technology company such as Microsoft
has a market value for exceeding its actual book value, which reflects
its intangible assets. Important intangible categories make up these
huge differences in value.
Perhaps, the first step to understanding the issue is to clearly define

the differences between tangible and intangible assets. Tangible assets
are required for business operations and are readily visible, rigorously
quantified, and are represented as line items in the balance sheet as
shown in table 1 (saint - orge, 2000). The intangible assets are key to
competitive advantage in the knowledge era and are invisible, difficult
to quantify, and not tracked through traditional accounting practices.
With this distinction, it is easier to understand more precisely the
different categories of IC.
Table 1
Comparison of tangible and intangible assets.
Tangible Assets Intangible Assets
(a) Required for business (a) Key for competitive advantage
operation in the knowledge era
(b) Readily visible (b) Invisible
(c) Rigorously quantified (c) Difficult to quantified
(d) Part of the balance sheet (d) Not tracked, through
accounting process
(e) Investment produces (e) Assessment based
known returns on assumptions
(f) Can be easily duplicated (f) Cannot be bought or imitated
(g) Depreciate with use (g) Appreciate with purposeful
use
(h) Best managed with (h) Best managed with
scarcity mentality abundance mentality
Although, there are more than a dozen ways to classify intangible

assets, some categories are common between the groupings. (Sullivan,
200) a researcher and practitioner in the field classified it as
components or elements of intellectual capital; the categorization
include research and development, intellectual assets and knowledge,
with knowledge being divided into tacit knowledge and codified
knowledge. This is shown in figure 2 below;
ELEMENTS OF INTELLECTUAL CAPITAL
The second classification offered by Miller 1999 is shown in figure 3

below.
Figure 3 CLASSIFICATION OF INTELLECTUAL CAPITAL
Still, a more widely accepted grouping is contained in figure 4 where

the enterprise is divided into tangible assets, intellectual capital, and
financial capital. In this arrangement, intellectual capital is further
divided into human capital, customer capital, and structural capital.
This classification will be adopted in the course of this research.
Figure 4
For the purpose of this study, focus will be on the human capital
aspect of intellectual capital.
2.5 MEASUREMENT OF INTELLECTUAL CAPITAL (HUMAN

CAPITAL)
For decades, human resources managers and executives have been
attempting to measure the contribution of the human resources
function and, more recently, the results of investment in human
resources. In the 1990s, several measurement processes began to
develop and are categorized as leading-edge approaches. Foremost
among them is the Return On Investment (ROI) process. Many
organisations' goal is to develop a Human Resources (HR) profit
centre. Under this plan, fees are charged for the HR services,
programs, and projects and represent incomes to the profit centre.
The expense of the HR staff becomes expenses for the profit centre.
The concepts of human capital measurement have taken on different

aspect. Varieties of human capital measures have been developed to
represent the stability, effectiveness, efficiency and capabilities of the
employees. As intellectual capital is addressed in an organisation, it
often go through many evolutionary phases. The first phase usually
starts with a review of the vision, mission and other strategic
initiatives of the organisation. In this review the senior management
team realizes the importance of the intangible assets and has a desire
to monitor and manage them in a productive way. The desire then
leads to assigning responsibilities to an intellectual capital officer or
the human capital executives.
COMMON AND FEASIBLE HUMAN CAPITAL MEASURES;

They process of monitoring and measuring 1C should be systematic,
involving many steps and processes. An important step is to
determine the specific human capital measures to monitor and
manage in the process. While it is difficult and sometimes dangerous
to prescribe a set of measures, the most common and feasible
measures are presented in table 2. Other measures may be important
for a specific organisation and some of these measures may not be
important in a specific situation. An important point about these
measures is that they represent some of the traditional HR indicators,
such as turnover and job satisfaction. But they also include other
measures that are critical to developing and emerging industries, such
as innovation, leadership, and competencies. In the following sections,
how each measures is developed and the key issues around the
measures are explored. This presentation is based on the assumption
that anything can be measured, regardless of how subjective Dr soft it
may be. The challenge is to increase the accuracy of the
measurement, so that the measuring devices have both validity and
reliability.
TABLE 2: COMMON HUMAN CAPITAL MEASURES.

1. INNOVATION
2. JOB SATISFACTION
3. ORGANISATIONAL COMMITMENT -. TURNOVER
5. TENURE
6. EXPERIENCE
7. LEARNING
8. COMPETENCES
9. EDUCATIONAL LEVEL
10. HR INVESTMENT
11. LEADERSHIP
12. PRODUCTIVITY
1. INNOVATION
For technology companies and other progressive organizations,
innovation is a critical issue. Innovation is both easy and difficult to
measure. It is easy to measure outcomes in areas such as copyrights,
patents, inventions and employee suggestions. It is more difficult to
measure the creative spirit of employees. An employee suggestion
system, a longtime measure of the innovative and creative process of
an organisation still flourishes today in many firms. Employees are
rewarded for their suggestions if they are approved and implemented.
Tracking the suggestions rates and comparing them with other
organizations is an important benchmarking item for innovation and
creative capability. Other measures, such as the number of new
projects, products, processes, and strategies, can be monitored and
measured in some ways. Subjectivity often enters the measurement
process with these issues. Some organisation will actually measure
the creative capability of employees using inventories and
instruments. Comparing actual scores of groups of employee overtime
reflects the degree to which employees are improving innovativeness
and creativity in the work place. Having consistent and comparable
measures is still a challenge.
2. JOB SATISFACTION
Another important item that is monitored by most organizations is
employees' job satisfaction. Using feedback surveys, employers
monitor the degree to which the employees are satisfied with the
employer, policies, the work environment, supervision and leadership,
the actual work itself, as well as many other factors. Sometimes, a
composite rating is developed to reflect an overall satisfaction value or
index for the organization, division, department, or region. There is
also a relationship between job satisfaction and employees turnover.
This relationship has taken a new meaning as turnover and retention
have become critical issues. Today, these relationships are often easily
developed as many of the human resources information systems have
modules to calculate the correction between turnover rates and job
satisfaction scores for the various groups, divisions, departments, and
so forth.
3. ORGANIZATIONAL COMMITMENT (OC)
In recent years, organizational commitment measures have
complemented or replaced job satisfaction measures. OC measures go
beyond employees' satisfaction and include the extent to which the
employees identify with organizational goals, mission, philosophy,
value, policies, and practices. The concept of involvement and
becoming a part of the organization is the key issue. OC is a measure
that more closely correlate with productivity and other performance
improvement measures, while job satisfaction does not always
correlate with improvement in productivity. As OC scores, taken on a
standard index improve, there should be corresponding improvement
in productivity. The OC is often measured in the same way as attitude
survey, using a five or seven point scale taken directly from employees
or groups of employees.
4. EMPLOYEE TURNOVER
One of the greatest threats to intellectual capital drain is the
unwanted departure of employees with high levels of expertise and
knowledge. Perhaps no measure has attracted so much attention as
employee turnover. Retention strategy has become a strategic issue.
The survival of some firms depends on low turnover rates for critical
job groups. Not only is turnover compared to historical rates, but is
often compared have to best practice firmed. Employee turnover is
denned as the number of employees leaving in a month divided by the
average number of employees in the month.
This is the standard turnover rate that includes all individual leaving.
A more appropriate measure would be to include only turnover
consider to be avoidable, usually referring to employees who
voluntarily leave or those whose departure could have been prevented.
For example, if an employee is terminated for poor performance in the
first six months of employment, some thing went wrong that could
have been prevented. Avoidable turnover is an important issue.
5. TENURE
Along with employee turnover comes the focus on tenure, or employee
longevity. In recent years, employee loyalty has eroded significantly.
Tenure is defined as an average service of employees, often measured
in years. It is tracked with key job groups where more tenure is
needed or in areas where expertise is critical to the organization. Gone
are the days where employees work for long periods of, time with one
employer, instead they often leave after just a matter of months or
years, sometimes for a better opportunity. The challenge for
organizations is to regain employee loyalty so that employees will stay
and the expertise will be there to contribute for a long time.
6. EXPERIENCE
Along with tenure is the experience in a particular field. The challenge
is to build certain level of expertise in a particular functional area, or
product line, or process. Experience levels are often measured as the
average number of years in a particular field, process,
department, section, or product. In some cases'it may be the number
of years in a particular job category such as the average experience
level of a sales representative.
7. LEARNING
Learning is a critical issue involved in organizational growth,
transformation and success. Many organizations where there are
many opportunities for employees to learn new skills, tasks, and
processes, and to gain new insight into the organization's effort to
become a competitive leader in its field. Some organizations attempt to
measure learning by the investment in training, the number of hours
of learning, or the number of programs offered. While the numbers are
important as a reflection of the commitment to learning, they do not
represent results, other measures are needed. A learning
measurement is a measurement of new skills and knowledge in formal
learning activities. For example, as employees attend training
programs or learning solutions, a learning measure. May be an
objective process such as testing, simulation, or demonstration.
Sometimes a more informal process such as self assessment, team

assessment, and facilitator assessment is appropriate. Many
organizations measure the amount of learning using very formal
techniques, using consistent scales, and rolling up the measures to
include comprehensive learning measurement for the entire
organization. In other situations, it is important for employees to have
certain body of knowledge in critical jobs. The challenge is to develop
meaningful ways to measure the knowledge. The important point here
is that knowledge is critical to success on the job, and learning comes
from a variety of sources, not only through formal training programs,
but also through research and a variety of other channels.
8. COMPETENCES
Organizations are interested in developing key competences in
particular areas such as the core mission, key product lines, and
important processes. Core competences are often identified and
implemented in critical job groups. Competences are measured with
self assessment from the individual employee as well as assessment
from supervisor. In some cases, other inputs may be important or
necessary to measure. That approach goes beyond just learning new
skills, processes, or knowledge to using a combination of skills,
knowledge, and behaviour on-the job to develop an acceptable level of
competence to meet competitive challenges.
9. EDUCATIONAL LEVEL
In the knowledge economy, education is critical, and many
organizations track the educational level as an important human
capital measure. That level measure the years of formal education
where an average of four (4) equates to attaining a bachelors degree.
For high-tech and research-based organizations, education is critical
for certain job groups.
10. HUMAN RESOURCES INVESTMENT

The actual investment in the human resources department and
staffing level is another key measure, which shows how much an
organization is willing to invest in staff who spent most of their time
analyzing, coordinating, developing, and implementing programmes to
improve human capital. In theory, the larger the HR department
expenses, the more productive the organization. In one major study by
Phillips 1996, this approach showed that the actual HR investment
(divided by operating expenses) had a significant correlation with
gross productivity (revenue per employee) and profitability (operating
income per employee).
11. LEADERSHIP
Perhaps, the most difficult measure is leadership, yet leadership
makes the difference in the success or failure of an organization.
Without the appropriate leadership behaviours throughout the
organization, the other resources can be misapplied or wasted.
Measuring leadership can be done in many different ways
Perhaps the most common way is to use a process called 360 - degree
feedback. Here a prescribed set of leadership behaviours desired in an
organization is assessed by different sources to provide a composite of
the overall leadership capabilities. The sources often come from the
immediate manager of the leader, a colleague in the same area, the
employees under the direct influence of the leader, internal or external
customers, and through a self- assessment. These assessments come
from different directions forming a 360 - degree circle. The measure is
basically an observation captured in a survey, often reported
electronically.
12. PRODUCTIVITY
A final measure of human capital is productivity. In a sense,
productivity is an organisation - level measure where the output is
measured per employee. This could be presented as average
production per employee. However, in service organizations and
organizations in different businesses, other measures are needed. One
of the most common measures for gross productivity is revenue per
employee. Other options could be income per employee and earnings
per employee.
2.6 INVESTMENT DECISIONS.

Introduction
Investment generally, is the commitment of funds or capital into an
under taken (assets) with the expectation of future returns which is
expected to be higher than the initial commitment. In finance and
business, an investment is an assets purchased for profit. There are
variations to the meaning of investments in various fields. Lots of
theorists have given definitions on investments, as follows:
 According to economic theories, investments refer to the per-
unit production of goods, which have not been consumed, but
will be used for future production.
 According to business management theories, investment refers
to tangible assets like machinery and equipment and building
and intangible assets like copyrights, patent and goodwill. The
decision for investment is also known as capital budgeting
decision.
 In terms of finance, investment refers to the purchasing of
securities or other financial assets from the capital market. It
also includes buying money market or real properties with high
market liquidity. Financial investments are investment in
stocks, shares, bonds, and other types of securities
investments.
As mentioned earlier, our focus in this research is on
financial investment (common stocks - shares precisely).
2.7 INVESTMENT DECISIONS.

Investment decision is one of the critical and most important of the
three key business objectives decisions of: investment, financing and
dividend decisions. Individuals and firms who seek to maximize their
idle resources (into wealth) are bound to take one form of investment
decisions or another.
Decision to invest only comes after careful analysis of the various
investment alternatives. Investment decisions refer to the systematic
process of identifying and selecting the best alternative investment
options among various competing alternatives, by way of careful
analysis, using tools of investments analysis,
2.8 CLASSIFICATIONS AND TYPES OF INVESTMENT DECISIONS

a) Long term Investment Decision: This is a decision to invest
with expectation of a long period of returns. This is with
anticipation of an expected flow of benefits over a series of
years. Capital budgeting decision and financial investment
decisions all fall into this category.
b) Short Term Investment Decision: This is an investment
decision with the anticipation of benefits within short period of
time, mostly not exceeding a year and sometimes with renewal
overtime for continued existence and benefits. Examples
include working capital investment, short term financial
investment etc.
c) Capital Budgeting Decision: This is a decision to invest
current funds most efficiently in long term assets with the hope
of an expected flow of benefits over a series of years.
d) Financial Investment: This is the decision to invest in
common stocks, preferred stocks, debentures, bond etc through
the capital and money markets with the anticipation of income
or returns, capital appreciation or both either for a short period
or long period of years.
e) Working Capital Investment: This refers to the investment in
the stock in trade and receivables of an organisation. Working
capital items are items of current assets and current liabilities,
such as stocks in trade, receivables, Payables, etc.
2.9 INVESTMENT DECISION ANALYSIS

Analysis of investment decision is carried out using some specific
tools of analysis with established or assumed decision criteria, and
this depends on the type of investment decision in question.
For capital budgeting decision, the tools of analysis are classified into
two:
(a) Traditional method, which include the pay back period and
accounting rate of returns.
(b) Discounted Cashflow method; this method involve discounting
the streams of cash flows using the cost of capital, in order to
take into consideration time value of money. Examples include:
discounted payback period, Net present value, internal rate of
returns, and profitability index.
The main focus will be on the analysis of financial investment

decisions. There are various propositions on analysis of financial
investments. Notable among them are; Fundamental analysis;
Technical analysis; Efficient Market Hypothesis (EMH).
Fundamental analysis involves delving into the financial statements.

This is also known as quantitative analysis, it involve looking at
revenue, expenses, assets, liabilities and other financial aspect of a
company. Fundamental analysis looks at this information to gain
insight on a company's past and future performances. The major
aspect of the financial statement considered for analysis is the
balance sheet, income statement and cash flow statement.
Technical analysis is another major form of security analysis.

Technical analysis based their decisions solely on the price and
volume movement of securities, using charts and a number of other
tools. They trade on momentum not caring about the fundamentals.
Efficient Market Hypothesis, however, are usually in disagreement

with both fundamental and technical analysts. The EMH contends
that it is essentially impossible to produce market-beating returns in
the long run, through either fundamental or technical analysis. The
rationale for this argument is that, since the market efficiently prices
all stocks on an ongoing basis, any opportunity for excess returns
derived from fundamental or technical analysis would be almost
immediately whittled away by the market's many participants, making
it impossible for anyone to meaningfully outperform the market over
the long term.
It is obvious that there is no one best method of financial investment

analysis, but it is observed that both technical analysis and EMH are
based on assumptions and are ex-post analysis. The fundamental
analysis proved to provide provable and measurable analysis than
others. This makes it popular. Now we will discussed the use of
fundamental analysis in details.
2.10 FUNDAMENTAL ANALYSIS

Fundamental analysis is a technique that attempt to determine a
security value by focusing on underlying factors that affect a
company's actual business and its future prospect. On a broader
scope, you can perform fundamental analysis on industries or the
economy as a whole. The term simply refers to the analysis of the
economic well- being of a financial entity as opposed to its price
movement. Fundamental analysis involves delving into the financial
statement of an entity. It is also known as quantitative analysis, it
involve looking at the revenue, expenses, assets, and liabilities and
other financial aspect of the company. Fundamental analysis looks at
this information to gain insight into a company's past and future
performances. The major aspect of financial statements considered for
analysis is the balance sheet, profit and loss account and cash flow
statement among others. Fundamental analysis is simply "researching
the fundamentals" Fundamental analysis serves to answer questions
such as;
 Is the company's revenue growing?
 Is it actually making profits?
 Is it earning enough returns for its shareholders above the
market returns?
 Is it in a strong-enough position to beat out it competitors in the
future?
 Is it able to repay its debts as and when due?
 Is the management trying to coo - the books"?
Several tools of analysis are adopted to answer the questions above,

but the most powerful and popular among them is the financial ratios
analysis.
2.11 FINANCIAL RATIOS ANALYSIS

This is defined as the expression of the various figures of the profit
and loss account and balance sheet as a fraction or percentage of one
another. Financial ratios are computed from the balance sheet items
and profit and loss account items to elicit specific information on the
profitability, efficiency, liquidity, viability and stability of the company.
The below are the types of financial ratios.
a. PROFITABILITY AND EFFICIENCY RATIOS;
This ratio measures the efficiency of a company. That is, it measures
the ability of the company to earn consistent profits from their
limited resources available. Some of the profitability ratios include;
(i) Gross Profit mark-up = Gross profit x 100
cost of sales 1
This measures the percentage of Gross profit in relation to cost
of sales.
(ii) Gross Profit Margin = Gross profit x 100
Sales 1
This indicates the efficiency with which the management
produce and sell the goods.
(iii) Net Profit margin = operating profit/profit after tax x 100
Sales 1
This ratio establishes the relationship between sales and profits,
and individuals management efficiency in manufacturing,
administering and selling the products. This ratio is the overall
measure of the firm's ability to turn sales into profits.
(iv) Operating expenses ratio = operating expenses x 100
Sales 1
This reflects the portion of sales gulped by operating expenses.
(v) Return On Capital Employed (ROCE) operating profit x 100
Capital employed 1
The ROCE indicate the percentage return generated by total
funds employed to finance the operations of the company during
a year.
(vi) Return On Equity (ROE)
= profit after tax-preference dividend x 100
Shareholders' fund 1
This measures the percentage of returns to the ordinary
shareholders.
b. LIQUIDITY AND ACTIVITY RATIOS

These ratios assess the ability of a firm to meet it short term debt
obligations.
(i) Current ratio = current assets : 1
Current liabilities
It indicates the ability of a company to meets it short-term
liabilities from its current assets without having to sell its
fixed assets or investment or issue shares to raise additional
funds.
(ii) Acid - test ratio = Current assets - stock : 1
Current liabilities
This ratio indicate the ability of the firm to meet its short term
liabilities from it current assets without having to sell its stocks.
(iii) Debtors collection period = average debtors x 365 days
Credit sales
This measures the number of credit days given to customers.
(iv) Creditors payment period = average creditors x 365 days
Credit purchases
This measure indicates the number of credit days
received from suppliers.
(v) Stock turn over period = average stock x 365 days.
Cost of sales
This indicates the number of days stock stayed in the store
before being sold for the period.
(vi) Rate of stock turnover = cost of sales
Average stock
This indicates the number of times stock are sold and replaced
during the year.
c. STABILITY/GEARING RATIOS:
These assess what percentage of total funds used to finance the firm's
operations is generated from outside sources, that is, it assesses the
stability of the company's capital structure. It also indicates the long
term solvency of the firm,
(i) Debts ratio/gearing/leverage ratio = long term debts x 100
Capital employed 1
This ratio indicates the percentage of capital employed that
was generated from the outside sources,
(ii) Debts to Equity ratio = long term debts x 100
Shareholder's fund 1
This ratio measures the relationship between the debts and
equity of a company to know the stability of the firm
(iii) Interest cover = Operating profit
Interest payable
This indicate how many times operating profit will be able to
cover interest payment.
(iv) Proprietary ratio = shareholders' fund
Total tangible assets
d. INVESTORS RATIOS/SHAREHOLDERS RATIOS/CAPITAL

MARKET RATIOS;
These ratios measure the returns attributable to each unit of shares.
This ratio indicates shareholders expectations,
(i) Dividend per shares (DPS)
= Gross proposed ord. shares Dividend
Number of or shares issued
This indicates the amount of dividend on every unit of ordinary
shares issued and ranking for dividend.
(ii) Earnings per shares (EPS)
= profit after tax - preference dividend
Number of ordinary shares issued
This indicates the amount of profit on each unit of ordinary
shares issued.
(iii) Price to Earnings ratio = Market price per share
Earning per share
This indicates how many times earnings must be generated to
recover back the amount invested on a share,
(iv) Earning Yield = Earning per share x 100
Market price per share 1
(v) Dividend Yield = Dividend per share

Market price per share
Both earnings and dividend yield evaluate the shareholder
returns in relation to the market value of shares.
(vi) Dividend cover = Earnings per share
Dividend per share
This indicates the number of times earnings is able to cover the
amount paid as dividend.
2.12 LIMITATION OF FINANCIAL RATIOS ANALYSIS

The use of financial ratios suffers from some limitations which include
(i) Its difficult to decide on proper basis of comparison
(ii) The comparison is rendered useless because of differences in
accounting policies and situation surrounding each company.
(iii) The price level changes also render the interpretation invalid.
(iv) The differences in the definition of items in the balance sheet
and profit and loss account make interpretation difficult.
(v) The ratios calculated at a point of time are less-informative and
defective as they suffer from short-term changes.
(vi) The ratios are generally calculated from past financial statement
and no indicators of future.
(vii) One of the greatest defects of financial ratios analysis which led
to this research is it inability to provide information on
management inefficiency as the financial statement do not
report on the intellectual capacity of the company. It is obvious
that management can hide their inefficiencies under arbitrary
(huge) figures based on which financial ratios are computed.
Most analysis that was based on this fact have crumbled and that is
why there is need to report on the intellectual capital and use
intellectual capital information along with all these quantitative
factors in analyzing investment decisions in Nigeria.
2.13 IMPACT OF INTELLECTUAL CAPITAL INFORMATION ON

INVESTMENT DECISIONS
Just as an army needs a general to lead it to victory, a company relies
upon management to steer it towards financial success. Some believe
that management is the most important aspect for investing in a
company. It makes sense, even the best business models is doomed if
the leaders of the company fail to properly execute the plan.
In theory, the larger the H. R investment the more productive the

organization. Measuring the Return on investment (ROI) in human
capital is mostly used by organizations and consulting firms to
determine the impact of intellectual capital information on investment
decisions. ROI on human capital is one of the most challenging areas
as organizations and consulting firms explore ways in which
investments can be monitored and captured. It is best to review this
process at two levels. At the macro level, studies show the pay-off of
investing in this important asset to include; the relationship to
corporate performance and market value. At the micro level,
investments must be monitored for individual projects designed to
enhance intellectual capital. (Phillips, 1996 J. Attention will be on the
macro level.
At the macro level, dozens of studies have developed correlations

between investments in human capital and subsequent performance
for firms and their market value. Some of these studies and their
findings are summarize below:
(i) Research at a firm found that good human capital- practices

increase a company's value overall. In their first human capital
index study, completed in late 1999, they found that scoring
high in 30 areas of human capital management relates to about
30% points in terms of market value in return to shareholders
(Zimmerman, 2001)
(ii) Margaret M. Blair, co-author of "understanding intangible
sources of value", a booking institution study released in
November 2000, provided additional insight into the connection
between investing in human capital and corporate performance
(Zimmerman, 2001)
(iii) The Metrus group was able to obtain information on ROI for 78
companies whose employees participated in study and training,
and ROI for 112 companies who do not participate. It discovered
that the use of people measures may be predictive of both of
these financial indices. In those of the organizations in which
people measurers are part of a balance set of measures used by
leadership teams, the ROI computed 5 years is 146% on the
average 4.6% and for the other 112 companies for 5 years is
97% and averaged 1.9% (Morgan 85 Schiemann, 1999).
(iv) In another study, Cap Gemini Ernst & Young (CGEY) provided
some insight in evaluating companies using non-financial
assets. In their centre for business and innovation, CGEY
interviewed institutional investors, pension fund and money
managers, who are responsible for most of the stock in the
economy. They discovered that about 40% of portfolio allocation
decisions were based on non-financial information. This was
information not provided by the company and not found in a
financial report. They considered the information revolutionary
(Zimmermann, 2001).
(v) Perhaps the most comprehensive method to place a value on the
intangible assets and convert them to the market value of the
company is through a process called knowledge capital score
card (Osterland, 2001). While a corporate balance sheet,
prepared according to GAAP, does a reasonable job of informing
about the physical assets and financial capital employed by a
company, it does not provide insight into the important
intangible assets in corporate enterprises. In response to this,
Baruch Lev, an accounting and finance professor at New York
University, developed a knowledge capital score card that
reflects all elements that comprise knowledge capital, it is the
sum of all intangible factors and qualities that enable a
company a better-than-aver age return on its asset base.
These theories consider that the competitive position of a firm

depends on its specific and not duplicated assets. The most specific
and not duplicated asset that an enterprise has is its human asset. It
takes advantage of their inter-dependent knowledge. That would
explain why some firms are productive than others with the same
technology, a solid human resource team makes all the difference.
The only way investors and analysts can obtain information about
company's assets is through it financial statements and reports.
Human resource experts had for sometimes been uncomfortable in the
presentation of organizational financial statement which invariably
excluded the most important and most precious asset, the human
asset.
Hence, its non-inclusion in the financial statement, the widely

accepted tools among the instruments used to judge the quality and
viability of an organization is very bothering and crucial.
It is a known fact today that thousands of companies are recording

millions of Naira, Dollars and Pounds of profits, while some are unable
to break-even. In fact, many companies have been declared bankrupt
due to their inability to make enough returns on investments.
The reasons for the differences between these companies can be
attributed to the types of employees that manage them. There is no
doubt as to the importance of human capital in an organization, they
are the one who generate the economic value for the organization.
REFERENCES
Aborode R., (2006) A practical approach to Advanced financial

Accounting, Master stroke consulting, Lagos.
Caddy I., (2002) "Intellectual capital: recognizing both assets and
Liabilities. Journal of Intellectual capital pp. 129 -146
Hettinger W. S. (2002) A pioneer in Intellectual capital, Skandia
consulting, Washington
Hendrisks J. A, Impact of human resource accounting information on
stocks investment decision "An empirical study" Account review,
April 1996. pp. 292-325
Keji M. O, (2007) Human resource accounting Lagos
Liebowitz, Ching Y. S., (2000) "developing knowledge management
metrics for measuring intellectual capital" Journal of
Intellectual capital, pp. 54-67
McElure B., (2009) Financial analysis http"//www. investopedia.com
Pandey I. M., (2005) Financial Management, ninth edition. Vikas
Publishing House PVT LTD, New Delhi, India
Petty, Guthrie J., "Intellectual capital literature review Management,
reporting and management" Journal of Intellectual capital pp.
155-176.
Phillips, Philips J.J. (2005) Measuring and monitoring intellectual
capital: progress and future challenges,American society for
training and development publication, USA.
Phillips, Philips J.J. (2000) "Intangible assets and value creation"
Journal of Intellectual capital.
CHAPTER THREE
RESEARCH METHODOLOGY
3.0 INTRODUCTION
In this chapter attempt will be made to explain the procedures used ir.
conducting this research study. Attention will be focused on areas
like: research design, population and sampling, data type, instrument
used for data collection and method of administering the instrument.
Also included is the method of data analysis and presentation.
3.1 RESEARCH DESIGN

Research design is the plan of all the procedures involve in conducting
a research project. It helps to provide guideline which directs the
researcher towards solving the research problem.
In this research study, the survey research method will be employed.

Survey method offers the very best opportunity for studying people's
attitude and behaviour in a natural setting (Santon 1981).
3.2 POPULATION AND SAMPLE

The population for this research study will consist of investing public
and professionals in financial institutions, stock broking firms and
management consultancy services firms. The population is delimited
to Lagos state, the commercial nerve centre of Nigeria.
It will not be possible to survey all the elements that constitute the
population of this study, as a result of the large size of the population.
The researcher decided to use the quota sampling technique. This is
carried out by selecting sixty respondents which comprise twenty (201
investing public and forty (40) members of selected professional and
financial institutions.
3.3 DATATYPE
The data to be used in this research study will consist of primary and
secondary data.
The primary data are collected through the use of questionnaires.

Details of this are provided under the instrumentation section.
The secondary data used in this research study are data and
information gathered from professional bodies journal, term papers,
articles from the internet and textbooks.
3.4 RESTATEMENT OF RESEARCH QUESTIONS

i. What is the usefulness of intellectual capital information?
ii. How is intellectual capital information measured?
iii. Do investors really know what intellectual capital is all about?
iv. How common is the use of intellectual capital information by
investment analysts in Nigeria as criteria for analyzing
investment decisions?
v. What is the relevance of intellectual capital information
to investment decisions?
vi. How important is the use of intellectual capital information for
evaluating company's performance?
3.5 RESTATEMENT OF HYPOTHESES

The following hypotheses are to be tested and verified in the course of
this study:
a. Ho: Intellectual capital information is not commonly used in
Nigeria for investment decisions making?
Hi: Intellectual capital information is commonly used in
Nigeria for investment decisions making.
b. Ho: Intellectual capital information cannot be easily measured
or determined.
Hi: Intellectual capital information can be easily measured or
determined.
c. Ho: Intellectual capital information is not relevant for
investment decisions in Nigeria,
Hi: Intellectual capital information is relevant for investment
Note:
Ho: Null hypothesis
Hi: alternative hypothesis
3.6 INSTRUMENTATION
As earlier stated, the primary data collection instrument used in this
research study is the questionnaire. Questionnaire is a document
containing series of logical, simple and unambiguous questions drawn
to be able to sample opinions and obtain data to assist in answering
the research questions.
The questionnaires for this research study was drawn based on the
research questions and hypothesis formulated which are stated above.
The questionnaires were produced to serve the sample selected for the
study. It consists of two parts, part A and part B.
Part A consisted of personal data of the respondents. Part B contained

general questions relating to the research study. The questions
contained in part B are of two categories, these are open ended and
close ended questions.
The open ended questions required the respondents to provide brief

written answers to the questions based on their opinion. The closed
ended questions are drawn along with five options of:
Strongly Agree (SA)? Agree (A), Undecided (U); Disagree (D) and
Strongly Disagree (SD), which require the respondent s to choose the
best option suitable to them by ticking the appropriate boxes
provided.
3.7 METHOD OF INSTRUMENT ADMINISTRATION

The researcher will employ the method of direct and indirect
questionnaire administration.
In direct or personal questionnaire administration, the presence of the

researcher is required to guide the investing public who may need the
researcher's attention.
The assisted or indirect method will involve the use of research

assistant in those institutions selected.
3.8 METHOD OF DATA PRESENTATION AND ANALYSIS

The statistical and analytical procedure used for the presentation and
analysis of data will be done using a simple frequency count and
inferential statistical method. Tabulation will also be used to analyse
the data. The responses obtained from questionnaires will be
tabulated for clear presentation and in order to find the percentage
responses. The hypothesis formulated will be tested using chi-square
method.
REFERENCES

CHAPTER FOUR
DATA ANALYSIS AND INTERPRETATION
4.0 INTRODUCTION
The objective of this chapter is to describe and interpret the result of
the field survey and use them to answer the research questions. The
statistical methods of measurement in this research shall be in nvc
different ways. Firstly, data presentation using frequency distributions
and also Chi-square was used to test the hypothesis. Sijcy
questionnaires were distributed; but Thirty eight were returned giving
ar. 80.0% response rate. The statistical software package (SPSS-
Statistical Program for the Social Sciences), re-branded as PASW
(Predictive Analytics Software) was used in analysing the
questionnaires.
4.1 ANALYSIS OF DEMOGRAPHIC DATA

The demographic data (Section A of the questionnaire) are analysed
using frequency and simple percentages. They are as shown in the
table below.
Table 4.1: Sex

Frequency Percent Valid Cumulative
Percent Percent
Valid 21 55.3 55.3 55.3
Male
Female 17 44.7 44.7 100.0
Total 38 100.0 100.0
Source: Research Questionnaire
From the table above, 55.3% of the total population are male, whereas
female respondents are 44.7%. Therefore, majority of the respondents
are male while minority are female.
Table 4.2: Age
Percent Percent
Valid Under 30 years 28 73.7 75.7 75.7
3 1-40 years 8 21.1 21.6 97.3
41-50 years 1 2.6 2.7 100.0
Total 37 97.4 100.0
Missing System 1 2.6
Total 38 100.0
This table reveals that 73.7% of the respondents are less than 30
years, 21.1% are between 31-40 years whereas 2.6% are between 41-
50 years age range. Therefore, majority of the respondents are
between 41-50 years.
Table 4.3: Marital Status

Percent Percent
Valid Single 31 81.6 81.6 81.6
Married 7 18.4 18.4 100.0
Total 38 100.0 100.0
This table reveals that 81.6% of the respondents are single while
18.4% are married persons.
Table 4.2: Age

Percent Percent
Valid Under 30 years 28 73.7 75.7 75.7
3 1-40 years 8 21.1 21.6 97.3
41-50 years 1 2.6 2.7 100.0
Total 37 97.4 100.0
Total 38 100.0
This table reveals that 73.7% of the respondents are less than 30
years, 21.1% are between 31-40 years whereas 2.6% are between 41-
50 years age range. Therefore, majority of the respondents are
between 41-50 years.
Table 4.3: Marital Status

Percent Percent
Valid Single 31 81.6 81.6 81.6
Married 7 18.4 18.4 100.0
Total 38 100.0 100.0
This table reveals that 81.6% of the respondents are single while
18.4% are married persons.
Table 4.4: Highest Educational Qualification

Percent Percent
Valid OND/NCE 22 57.9 75.9 75.9
B.Sc/HND 6 15.8 20.7 96.6
M.Sc/MBA 1 2.6 3.4 100.0
Total 29 76.3 100.0
Missing System 9 38 23.7
Total 100.0

This table shows that 57.9% of the respondents have OND/NCE,
15,8% have B.Sc/HND possess qualifications, while 2.6% of the
respondents are M.Sc/MBA certificate holders.
Table 4.5: Highest Professional Qualification

Percent Percent
Valid AAT 5 13.2 45.5 45.5
ICAN/ACCA 3 7.9 27.3 72.7
Others 3 7.9 27.3 100.0
Total 11 28.9 100.0
Total 38 100.0
From the table above 13.2% of the respondents have AAT professional
certificate, 7.9% have ICAN/ACCA qualifications, while 7.9% of the
respondents have professional certificate in other field of study.
Table 4.6: Length of Work Experience

Percent Percent
Valid Below 5 years 15 39.5 42.9 42.9
5-1 0 years 18 47.4 51.4 94,3
1 1-20 years 2 5.3 5.7 100.0
Total 35 92.1 100.0
Total 38 100.0
Source; Research Questionnaire
39.5% of the respondents have served the organization for between 0-

5 years, 47.4% for between 5-10 years, while 5.3% for between 11-20
years.
Table 4.7: Area/Line of Practice

Percent Percent
Valid 23 60.5 71.9 71.9
Finance/Accounting
Internal Audit 1 2.6 3.1 75.0
Financial Analysis 3 7.9 9.4 84.4
Investment 5 13.2 15.6 100.0
Total 32 84.2 100.0
Total 38 100.0
60.5% of the respondents are workers in finance/accounting, 2.6%

are internal audit, 7,9% are financial analysis while 13.2% have
investment in their area of training.
Table 4.8: Financial statements analysis is the only tool for
analysing financial investment decisions
Percent Percent
Valid Strongly Agree 3 7.9 8.6 8.6
Agree 17 44.7 48.6 57.1
Undecided 2 5.3 5.7 ' 62.9
Disagree 8 21.1 22.9 85.7
Strongly Disagree 5 13.2 14.3 100.0
Total 35 92.1 100.0
Total 38 100.0
7.9% of the respondents strongly agreed that financial statements

analysis is the only tool for analysing financial investment decisions.
44.7% agreed, 5.3% were undecided, 21.1% disagreed while 13.2% of
the respondents strongly disagreed.
Table 4.9: You invest in a company simply because its financial

statements reported huge profits and financial
fundamentals
Percent Percent
Agree 9 23.7 26.5 47.1
Undecided 4 10.5 11.8 58-B
Disagree 9 23.7 26.5 85.3
Strongly Disagree 5 13.2 14.7 100
Total 34 89.5 100.0
Total 38 100.0
This table reveals that 18.4% of the respondents strongly agreed, 23.7
agreed, 10.5% were undecided, 23.7% disagreed whereas 13.2%
strongly disagreed that they invest in company because its financial
statements reported huge profits and financial fundamentals.
Table 4.10: Intellectual capital information is relevant for

investment decision
Percent Percent
Agree 13 34.2 38.2 94.1
Disagree 2 5.3 5.9 100.0
Total 34 89.5 100.0
Total 38 100.0

This table shows that 50.0% of the respondents strongly agreed tha.
intellectual capital information is relevant for investment decision,
34.2:: agreed, while 5.3% disagreed.
Table 4.11: Intellectual capital information is important for

evaluating company's performance
Percent Percent
Agree 17 44.7 50.0 97.1
Undecided 1 2.6 2.9 100.0
Total 34 89.5 100.0
Total 38 100.0
This table shows that 42.1% of the population strongly agreed that
intellectual capital information is important for evaluating company's
performance, 44.7% agreed, while 2.6% were undecided.
Table 4.12: It is important to take into consideration the
managerial capability of the management team of the
company when taking financial investment decisions
Percent Percent
Agree 14 36.8 38.9 100.0
Total 36 94.7 100.0
Total 38 100.0

This table shows that 57.9% of the respondents strongly agreed that it
is important to take into consideration the managerial capability of
the management team of the company when taking financial
investment decisions, while 36.8% agreed.
Table 4.13: The managerial capability of the company can be

easily measured and analysed
Percent Percent
Agree 18 47.4 50.0 72.2
Undecided 5 13.2 13.9 86.1
Disagree 4 10.5 11.1 97.2
Total 36 94.7 100.0
Total 38 100.0
This table gives accounts that 21.1% of the respondents strongly

agreed, 47.4% agreed, 13.2% were undecided, 10.5% disagreed while
36.8% agreed that the managerial capability of the company can be
easily measured and analysed.
Table 4.14: Intellectual capital information is commonly used by

investors for financial investment decision making
Percent Percent
Agree 16 42.1 45.7 88.6
Undecided 2 5.3 5.7 94.3
Disagree 2 5.3 5.7 100.0
Total 35 92.1 100.0
Total 38 100.0
This table shows that 39.5% of the respondents strongly agreed thai
intellectual capital information is commonly used by investors for
financial investment decision making, 42.1% agreed, 5.3% were
undecided while 5.3% disagreed.
Table 4.15: Intellectual capital information is commonly used by

analysts for financial investment analysis
percent Percent
Agree 14 36.8 43.8 81.3
Undecided 5 13.2 15.6 96.9
Disagree 1 2.6 3.1 100.0
Total 32 84.2 100.0
Total 38 100.0
This table shows that 31.6% of the respondents strongly agreed that
intellectual capital information is commonly used by analysts for
financial investment analysis, 36.8% agreed, 13.2% were undecided
while 2.6% disagreed
Table 4.16: The financial statement provides information on the

managerial capability of the company's management
team
Percent Percent
Agree 20 52.6 58.8 79.4
Undecided 2 5.3 5.9 85.3
Disagree 3 7.9 8.8 94.1
Total 34 89.5 100.0
Total 38 100.0
This table shows that 18.4% of the respondents strongly agreed,
52.6C: agreed, 5.3% were undecided, 7.9% disagreed while 5.3%
strongly disagreed that financial statement provides information on
the managerial capability of company's management team.
4.2 TEST OF HYPOTHESIS

Hypothesis One
Ho: Intellectual capital information is not commonly used by
analysts for financial investment analysis.
Hi; Intellectual capital information is commonly used by analysts
for financial investment analysis.
Chi-Square Test Frequencies

Test Statistics
Intellectual capital information
is commonly used by analysts
for financial investment
analysis
Chi-Square3 13.750
df 3
Asymp. Sig. .003
a- 0 cells (.0%) have expected frequencies less than
5. The minimum expected cell frequency is 8.0.
INTERPRETATION OF RESULT
Xcalc = 13.722, Xtab = 7.82, degree of freedom df = 3
Since the calculated value is greater than the tabulated value, the null
hypothesis (H0) will be rejected; we therefore conclude that the
intellectual capital information is commonly used by analysts for
financial investment analysis.
Hypothesis Two
Ho: The intellectual capital information of the company can not be
Easily measured and analysed
Hi: The intellectual capital information of the company can be
easily
measured and analysed

The intellectual capital information of the company can be easily
measured and analysed
Observed N Expected N Residual
Strongly Agree 8 7.2 .8
Agree 18 7.2 10.8
Undecided 5 7.2 -2.2
Disagree 4 7.2 -3.2
Strongly Disagree 1 7.2 -6.2
Total 36
Test Statistics
The intellectual capital
information of the company can
be easily measured and analysed
Chi-Squarea 23.722
df 4
Asymp. Sig. .000
a. 0 cells (.0%) have expected frequencies less than 5. The

minimum expected cell frequency is 7.2.
hypothesis (Ho) will be rejected, we therefore conclude that the
managerial capability of the company can be easily measured and
analysed.
Hypothesis Three
Ho: The intellectual capital information is not relevant for
investment decision.
Hi: The intellectual capital information is relevant for investment
decision.

Intellectual capital information is relevant for investment
decision
Observed N Expected N Residual
Strongly Agree 19 11.3 7.7
Agree 13 11.3 1.7
Disagree 2 11.3 -9.3
Total 34
Test Statistics
Intellectual capital information is
relevant for investment decision
Chi-Squarea 13.118
df 2
Asymp. Sig. .001
a. 0 cells (.0%) have expected frequencies less than 5. The
minimum expected cell frequency is 11.3.
hypothesis (Ho) will be rejected; we therefore conclude that the
intellectual capital information is relevant for investment decision.
CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
5.0 INTRODUCTION
After gathering and analyzing the various data and information
relevant for the research study, it is pertinent to summarize the
results and findings of the study.
This chapter aims at summarizing the results and findings of the

study on which recommendations and conclusion are based. The
researcher also offers recommendation for further studies on this
research topic.
5.1 SUMMARY
This research work was proposed to drive home the fact that
intellectual capital information is useful and relevant for investment
decisions in Nigeria, to assess their viability or predict their collapse.
It was established in this research work that there are various tools of
investment analysis, ranging from fundamental analysis, technical
analysis, to efficient market hypothesis. All of these still do not
guarantee the efficiency and competence of the management of the
invested companies, as the information forwarded to the analysts as
contained in the financial statement do not reveal the management
capabilities. When all these tools and information are used along with
the assessment of the intellectual capital information of the company,
better decisions will be taken.
It was also established in this research work that substantial

differences between company's book values and market values
indicate the presence of assets not recognized and measured in the
company's balance sheet.
Intellectual capital assets account for a substantial proportion of this
discrepancy. At present, companies are not required to report on
intellectual capital assets, which leave the traditional accounting
system ineffective for measuring the true impact of such intangible.
Some recommendations are made on how analysts can measure and
analysed the impact of intellectual capital information of the company.
It is also important to state here that the aspect of intellectual capital
focused on in this research work is the "human capital assets".
Attempt is made to discuss the indicators of measuring the human
capital resources of the company, ranging from human resources
investment, organizational commitment, competence, experience,
learning,, educational level, leadership, productivity, to mention just a
few.
Finally, data gathered from investing public and analysts show that
intellectual capital information is important and relevant to the
analysis of financial investment decisions in Nigeria. The usefulness of
this research result to investing public, analysts and professionals will
be massive, as it will assist in making informed judgment and optimal
decisions.
5.2 LIMITATIONS OF THE STUDY

The extent and scope of the researcher's work is limited by the
following circumstances;
(i) The non-availability of data, since all indication point to the
fact that this topic of research is less - frequently researched
on
(ii) The reliability, quality and viability of the respondents'
response as this would have a great effect on the conclusions
reached,
(iii) Lack of adequate time to prepare and source for research
materials for the research work, considering the time limit
for the completion of the research study.
(iv) Most of the sources of materials and relatively expensively
expensive, and due to lack of fund the researcher was unable
to obtain enough materials.
5.3 CONCLUSIONS
In the course of the research work, the following conclusions emerged:
(a) That analysis of financial statement is the most popular tools
for analyzing financial investment decisions in Nigeria. This goes
to show that the real financial position of any firm can be found
in the financial statements and that this is what analysts used
mostly to assess the viability of investments.
(b) That most investing public invests in companies simply because
they reported huge amount of profits and financial
fundamentals.
(c) That intellectual capital information is relevant for investment
(d) That intellectual capital information is relevant for evaluating
company's performance level.
(e) That it is important to take into consideration the managerial
capability of the management team of the company when taking
financial investment decisions. Also that the managerial
capability of the company can be easily measured and analyzed,
but no specific standard of measurement is available.
(f) That intellectual capital information is commonly used by
analysts and investors for financial investment analysis.
(g) What has limited the effect of the wide-spread use of intellectual
capital information along with the financial ratio analysis is the
erroneous notion by investing public and analysts that
the financial statement of companies provide information
on the managerial capabilities of the company's
management team, whereas in actual fact it is not so.
In conclusion, the researcher put forward four (4) research

hypotheses, which were tested statically using chi-square. The results
of the test of the hypothesis were interpreted and discussed. From the
interpretation and discussion, the following findings emerged:
(i) That the intellectual capital information is commonly used by
analysts for financial investment analysis.
(ii) That managerial capability of the company can be easily
measured
(iii) That intellectual capital information is relevant for
5.4 RECOMMENDATIONS
It was discovered from the research work that the most commonly
used tool of financial investment analysis is the fundamental analysis
because of its ease of computation and verifiability. Some of the
conclusions also reveal that few of the analysts that make successful
investment decisions are those that employ the use of fundamental
analysis along with intellectual capital information. But this comes
with the problem of common measure and basis of measurement. The
following recommendations were advanced, based on the fact that the
use of ratios is common among analysts.
(i) The issue of standards to harmonize the reporting standard on
human assets so as to make the financial statements and
reports a good and comprehensive tool for analyzing financial
investment decisions.
(ii) Investment analysts can compute along with the usual financial
investment ratio; the returns on investment in employees and
employees contributions to earning such as;
(i) Earnings per employee = Earnings before interest and tax
Average number of employees per annum (p.a)
(ii) Earnings yield per employee = Earnings per employee
Market price per shares
(iii) Revenue per employee = Gross revenue
Average number of employees p.a.
(iv) Gross profit/net profit per employee = Gross/net profits
Average number of employee p.a.
3. Another important one is number of suggestions per employee
that turn out to be productive and profit enhancing.
4. Inventions, productive and successful projects per employee.
5. In the case of marketing of products and sales representative,
one can calculate number of customers per employee.
6. The level of the company's research and development.
7. Analysis of the level of investment in training and development
of employees and management.
All these and much more will be useful in obtaining intellectual

capital information that can be used to complement the financial ratio
analysis for investment decisions.
It is in the opinion of the researcher that if all the above intellectual

capital information measures are considered along with the financial
ratio measures, better investment decisions will be made in the
Nigerian economy, and investors can be rest assured of maximum
returns on their investment.
5.5 OTHER RECOMMENDATIONS

During the course of the study, it was found out that not much work
has been carried out by professionals, analysis and researchers in
Nigeria on the use of and measurement of intellectual capital
information. The brief assessment of intellectual capital recaps the
important challenges for researchers, consultants and practitioners in
the field.
The greatest challenge to the use of intellectual information for

investment decision in Nigeria is common measures, perhaps even
standard measures need to be developed. Reporting and comparing
intellectual capital information of companies need to be standardized.
Although, it is difficult to secure agreement on how to report different
measures, standardization is critical for industry-wide acceptance and
use.
It is therefore recommended that more research should be carried out
on intellectual capital measurement and reporting.
BIBLIOGRAPHY

Aborode R., (2006) A practical approach to Advanced
financial Accounting, Master stroke consulting, Lagos.
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Edvinsson, L., 1994. Intellectual Capital, Skandia, Stockholm,
Sweden.
Edvinsson, L., Malone, M., 1997., Intellectual Capital, Piatkus,
London.
Ernst & Young, 1997. Enterprise Value in the Knowledge Economy-
Measuring Performance in the Age of Intangibles, Cambridge,
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Davenport, T.H. and Prusak, L., 1998. Working Knowledge: How
Boston. Organisations Manage What They Know, Harvard
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Hall, R., 1992. "The strategic analysis of intangible resources",
Strategic Management Journal, 13:135-144.
Hendrisks J. A, Impact of human resource accounting information on
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April 1996. pp. 292-325.
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Business School Press: Boston.
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Metrics for measuring intellectual capital" Journal of
Intellectual capital, pp. 54-67
Machlup, F., 1980. Knowledge: Its creation, distribution, and
economic significance, Vol. 1: Knowledge and Knowledge
Production, Princeton University Press: Princeton:
McElure B., (2009) Financial analysis http"//www.investopedia.com.
Miller, R., 1996. Measuring What People Know: Human Capital
Accounting for the Knowledge Economy, Paris: OECD.
Mouritsen J., Larsen, HT., Bukh, PND., 1998. Intellectual Capital and
the 'Capable Firm': Narrating, Visualising and Numbering for
Managing Knowledge, Copenhagen Business School and Aarhus
School of Business.
Pandey I. M., (2005) Financial Management, ninth edition. Vikas
Publishing House PVT LTD, New Delhi, India.
Petty, Guthrie J., "Intellectual capital literature review Management,
reporting and management" Journal of Intellectual capital pp.
155-176
Phillips J.J., (2000) "Intangible assets and value creation"
Journal of Intellectual capital.
Reilly, R., Schweihs, R., 1998. Valuing Intangible Assets, McGraw-Hill:
New York
Reinhardt, R, Bomemann, M, Pawlowsky, P. Schneider, U. 2001.
"Intellectual Capital and Knowledge Management: Perspectives
on Measuring Knowledge", in: Dierkes M.; Berthoin Antal A;
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Harvard Business Review, July-August.
UNIVERSITY OF LAGOS
FACULTY OF BUSINESS ADMINISTRATION
DEPARTMENT OF ACCOUNTING
QUESTIONNAIRE
I am Babalola Abdul hammed a final year student of the Department
Of Accounting, Faculty Of Business Administration, University Of
Lagos. I am presently conducting a research on "The Use of
Intellectual Capital Information on Investment Decisions in Nigeria".
The research is purely for academic purpose and is being undertaken
in partial fulfilment of the requirement for the award of Bachelor of
Science degree in accounting. The confidentiality of respondents' data
shall be strictly maintained.
Thanks in anticipation of your co-operation. SECTION A: BIO - DATA

Kindly tick the appropriate response in the spaces provided below.
1) Sex:
Male [ ] Female [ ]
2) Age:
Under 30 years [ ] Above 50 years [ ]
31-40years [ ] 41-50years [ ]
3) Marital Status:
Single [ ] Married [ ]
Others Please specify _________________________________________
4) Highest Educational Qualification:
OND/NCE [ ] Bsc/HND [ ]
M.Sc/MBA [ ] Ph.D [ ]
5) Highest Professional Qualification: AAT Others
ICAN/ACCA [ ] CIS/CFA [ ]
6) Length of Work Experience:
Below 5 years [ ] 5 - 10 years [ ]
11 - 20 years [ ] Above 20 years [ ]
7) Area/Line of Practice:
Finance/Accounting [ ] Internal Audit [ ]
Financial Analysis [ ] Investment [ ]
SECTION B
Kindly tick the appropriate response in the spaces provided. Where SA
= Strongly Agree; A = Agree; U = Undecided; D = Disagree; SD -
Strongly Disagree.
8) What do you usually consider when analysing financial
investment decisions. _________________________________________
_______________________________________________________________
_______________________________________________________________
9) Financial statements analysis is the only tool for analysing
financial investment decisions.
SA [ ] A [ ] U [ ] D [ ] SD [ ]
10) You invest in a company simply because its financial
statements reported huge profits and financial fundamentals.
SA [ ] A [ ] U [ ] D [ ] SD [ ]
11) What do you know about intellectual capital? __________________
_______________________________________________________________
_______________________________________________________________
12) How can you identify, measure or determine the level of
intellectual capital of an organisation. _________________________
_______________________________________________________________
_______________________________________________________________
13) Intellectual capital information is relevant for investment
decision
SA [ ] A [ ] U [ ] D [ ] SD [ ]
14) Intellectual capital information is important for evaluating
company's performance.
SA [ ] A [ ] U [ ] D [ ] SD [ ]
15) It is important to take into consideration the managerial
capability of the management team of the company when taking
financial investment decisions.
SA [ ] A [ ] U [ ] D [ ] SD [ ]
16) The managerial capability of the company can be easily
measured and analysed.
17) Can you tell us the level of intellectual capital capacity of your
organisation and what can you show for that? _________________
_______________________________________________________________
_______________________________________________________________
18) Intellectual capital information is commonly used by investors
for financial investment decision making.
SA [ ] A [ ] U [ ] D [ ] SD [ ]
19) Intellectual capital information is commonly used by analysts
for financial investment analysis.
SA [ ] A [ ] U [ ] D [ ] SD [ ]
20) The financial statement provides information on the managerial
capability of the company's management team.
SA [ ] A [ ] U [ ] D [ ] SD [ ]

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THE USE OF INTELLECTUAL CAPITAL INFORMATION FOR

INVESTMENT DECISIONS IN NIGERIA

This study examines the necessity of using intellectual capital

Chapter Two: Literature Review

Chapter Three: Research Methodology

Chapter Four: Data Analysis and Interpretation

Chapter Five: Summary, Conclusions and Recommendations

1.1 BACKGROUND OF THE STUDY

A relationship entered into with the users of their funds by the

This study seeks to highlight the use of intellectual capital information

Intellectual capital is a knowledge that can be exploited for some

In Nigeria, people often under play the impact and significance of

The failure of so many investment options in Nigeria posed a lot of

1.3 PURPOSE OF THE STUDY

1.4 RESEARCH QUESTIONS

1.5 STATEMENT OF HYPOTHESES

1.6 SCOPE OF THE STUDY

1.7 SIGNIFICANCE OF THE STUDY

Summary of these significance include:

1.8 DEFINITION OF TERMINOLOGIES

Asika N. (1991), Research Methodology in Behavioral science,

Substantial differences between book values and market values

This chapter seeks to review relevant literatures on intellectual

2.1 BRIEF HISTORY OF INTELLECTUAL CAPITAL

However, the process includes accounting for the condition of human

In 1991, Thomas Stewart, a member of the editorial board at "fortune

2.2 DEFINITIONS OF INTELLECTUAL CAPITAL

2.3 THE DRIVERS FOR THE INTEREST IN INTELLECTUAL

Perhaps, the first step to understanding the issue is to clearly define

Although, there are more than a dozen ways to classify intangible

ELEMENTS OF INTELLECTUAL CAPITAL

The second classification offered by Miller 1999 is shown in figure 3

Still, a more widely accepted grouping is contained in figure 4 where

2.5 MEASUREMENT OF INTELLECTUAL CAPITAL (HUMAN

The concepts of human capital measurement have taken on different

COMMON AND FEASIBLE HUMAN CAPITAL MEASURES;

TABLE 2: COMMON HUMAN CAPITAL MEASURES.

Sometimes a more informal process such as self assessment, team

10. HUMAN RESOURCES INVESTMENT

2.6 INVESTMENT DECISIONS.

2.7 INVESTMENT DECISIONS.

2.8 CLASSIFICATIONS AND TYPES OF INVESTMENT DECISIONS

2.9 INVESTMENT DECISION ANALYSIS

The main focus will be on the analysis of financial investment

Fundamental analysis involves delving into the financial statements.

Technical analysis is another major form of security analysis.

Efficient Market Hypothesis, however, are usually in disagreement

It is obvious that there is no one best method of financial investment

2.10 FUNDAMENTAL ANALYSIS

Several tools of analysis are adopted to answer the questions above,

2.11 FINANCIAL RATIOS ANALYSIS

b. LIQUIDITY AND ACTIVITY RATIOS

d. INVESTORS RATIOS/SHAREHOLDERS RATIOS/CAPITAL

(v) Dividend Yield = Dividend per share

2.12 LIMITATION OF FINANCIAL RATIOS ANALYSIS

2.13 IMPACT OF INTELLECTUAL CAPITAL INFORMATION ON

In theory, the larger the H. R investment the more productive the

At the macro level, dozens of studies have developed correlations

(i) Research at a firm found that good human capital- practices

These theories consider that the competitive position of a firm

Hence, its non-inclusion in the financial statement, the widely

It is a known fact today that thousands of companies are recording

Aborode R., (2006) A practical approach to Advanced financial