Firm employee relations system and financial performance: Unfolding the Dual-Causal relationship and the associated temporal and resource boundary conditions

Abstract

Prior research has reported a positive relationship between a firm’s human resource management system and performance. In this study, we add to this line of research by investigating the dual-causal relationship between firms’ employee relations system (ERS) and financial performance and the associated temporal and resource boundary conditions. Using matched data between firm ERS and financial performance across 18 years, we find support for the dual-causal relationship between firm ERS and Tobin’s Q. We also find that the impact of firm ERS on Tobin’s Q loses its significance over time, whereas the impact of Tobin’s Q on ERS largely remains stable over time. Lastly, we find that firm resource availability makes the positive impact of firm ERS on financial performance (Tobin’s Q and net income per employee) stronger and longer lasting.