Dynamics of human capital investment and firm performance: MSMEs context

Given the importance of MSMEs to the Indian economy, this study explores the dynamic interdependency between human capital investment and firm performance in the context of the government of India's support for these businesses. A dataset of 42 Indian MSMEs from 2006 to 2020 is used in the analysis, which also uses impulse response analysis and panel vector autoregression (VAR). The empirical results show that investments in human capital (HC) have a negative effect on sales but a favourable effect on firm value. The Granger causality test also shows a bidirectional association between HC investment and company performance. The findings are analysed for theoretical, managerial, and policy implications. Human capital development can affect numerous performance indicators, thus organisations should carefully allocate resources for it. This data helps managers choose HC investment strategy. The Indian government should help MSMEs grow human capital to boost business value. MSMEs may benefit from information exchange, skill development, and training policies. The study's conclusion suggests further research on industry-specific moderators and how human capital investment influences business performance.