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Human Capital Orientation and Financial Performance. A Comparative Analysis of US Corporatons

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  • Łukasz Bryl

    (Department of International Economics, Poznan University of Economics and Business, Al. Niepodleglości 10, 61-875 Poznań, Poland)

Abstract

In the knowledge-based economy, long-term corporate performance and its competitive advantage are strongly associated with human capital. Theoretical deliberations suggest that companies with greater human capital orientation (higher salaries and benefits, more training, a transformational leadership style, better equipment) might perform better than their peers with less human capital orientated strategy due to: higher skills of employees, greater motivation and thus higher overall corporate effectiveness. On the other hand, orientation towards human capital generates higher costs which may negatively affect profitability and stock market valuation. There are two aims of this paper. The first one is to state whether human capital orientated firms generate positive financial performance. The second aim is to compare financial performance of human capital orientated firms with the benchmarking sample to state if the financial performance is above-average. Research was conducted on a sample of 7,204 unique publicly listed companies from the American stock market within a ten year period (72,040 firm-year observations). Empirical studies were carried out with the help of one hypothesis. Two groups of companies were created and their results on financial performance were compared. The first group consisted of human capital orientated firms that were identified with the help of the well-known 100 Best Companies to Work For listing, in line with the Edmans (2009) approach. The second group composed of US-based publicly listed entities from 11 industries. Analysis was conducted for the 2007-2017 years. The key findings of the paper are: strategy based on human capital orientation provides high profitability and leads to above-average financial performance, mainly in the field of equity growth and stock market valuation. The paper has significant practical implications for investors in terms of possible directions of stock market investments aimed at achieving above-average returns as well as for corporate management by indicating that human capital orientation pays off. The paper fills the research gap between two points. First, it states in which financial performance pillars human capital orientated firms perform best. Second, it compares the results of the human capital orientated strategy with the entities from the 11 different industries. Research refers to the American publicly listed enterprises.

Suggested Citation

  • Łukasz Bryl, 2018. "Human Capital Orientation and Financial Performance. A Comparative Analysis of US Corporatons," Journal of Entrepreneurship, Management and Innovation, Fundacja Upowszechniająca Wiedzę i Naukę "Cognitione", vol. 14(3), pages 61-86.
  • Handle: RePEc:aae:journl:v:14:y:2018:i:3:p:61-86
    DOI: 10.7341/20181433
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    References listed on IDEAS

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    1. Cooper, Arnold C. & Gimeno-Gascon, F. Javier & Woo, Carolyn Y., 1994. "Initial human and financial capital as predictors of new venture performance," Journal of Business Venturing, Elsevier, vol. 9(5), pages 371-395, September.
    2. Luc Sels & Sophie De Winne & Johan Maes & Jeroen Delmotte & Dries Faems & Anneleen Forrier, 2006. "Unravelling the HRM–Performance Link: Value‐Creating and Cost‐Increasing Effects of Small Business HRM," Journal of Management Studies, Wiley Blackwell, vol. 43(2), pages 319-342, March.
    3. Lukasz Bryl & Szymon Truskolaski, 2015. "The Intellectual Capital Effectiveness and Enterprises' Performance: Empirical Study of Polish Listed Companies Using VAIC Method," Managing Intellectual Capital and Innovation for Sustainable and Inclusive Society: Managing Intellectual Capital and Innovation; Proceedings of the MakeLearn and TIIM Joint International Conference 2,, ToKnowPress.
    4. Black, Sandra E & Lynch, Lisa M, 1996. "Human-Capital Investments and Productivity," American Economic Review, American Economic Association, vol. 86(2), pages 263-267, May.
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    Cited by:

    1. PrzemysÅ‚aw Zbierowski, 2020. "The mystery of high performance – mediation by entrepreneurial orientation and organizational citizenship behavior," Journal of Entrepreneurship, Management and Innovation, Fundacja Upowszechniająca Wiedzę i Naukę "Cognitione", vol. 16(2), pages 67-92.
    2. Ahmed Taher, 2023. "Do corporate values have value? The impact of corporate values on financial performance," Future Business Journal, Springer, vol. 9(1), pages 1-11, December.

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    More about this item

    Keywords

    knowledge-based economy; human capital; financial performance; multinationalities;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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