HC and financial performance with two HRM strategies

Purpose - The purpose of this paper is to examine the relationship between levels of human capital and financial performance of firms that use two distinct human resource management (HRM) strategies. Design/methodology/approach - A survey of 128 HRM managers was conducted to assess differences in human capital between firms using different HRM strategies. A multiple regression analysis was used to investigate the relationship between firms’ human capital and financial performance. Findings - The results show that companies employing a make-organic strategy have a higher level of human capital than companies employing a buy-bureaucratic strategy. There was no relationship between the level of human capital and long term financial performance of firms with both make-organic and buy-bureaucratic strategies. Research limitations/implications - This research contributes toward understanding the effect of HRM strategy and facilitates an optimal strategy choice depending on the organization. However, this study did not consider the lead time between changes in human capital and the effect on financial performance. Practical implications - The research encourages firm managers to understand the value of human capital, preparing them for changes in the future. Originality/value - This study is among the first to investigate the relationship between human capital and financial performance considering different HRM strategies.