Firm-specific Human Capital Research Articles

Double shock effects of downsizing in economic downturn on employees with high firm-specificity

Extant human capital theory relies on isolating mechanisms through which the employer restricts mobility of employees with firm-specific human capital (less favorable to external market). Recently, studies suggested a possibility that such employees experience reduced job satisfaction and increased attention from new employers. In an effort to find a strong situation in which collapse of isolating mechanisms happens prevalently, this paper suggests double shock effects of downsizing in economic downturn, which cause employees with firm-specific skills to feel violation of the psychological contract and want to leave the organization voluntarily, using two Korean labor panel studies. Study 1 suggested that employees with firm-specific skills experience were less satisfied with their jobs in economic downturn than those with general skills. Study 2 showed that downsizing cause employees to perceive low levels of trust in talent management and intend to leave the organization when the employer downsize their employees in economic downturn. Firm-specificity worked as a moderator between trust and turnover intention in a way that employees with high firm- specificity are more likely to feel distrust in talent management than those with low firm-specificity, resulting in high levels of turnover intention. This paper contributes to human capital literature by shedding a light on the possibility that traditional belief of human capital theory could be inconsistent with a specific situation and fail to explain unexpected outcomes.

Accurate or Biased?: Employees' Perceived Firm-Specific Human Capital and Wages

The theory of perceived firm-specific human capital suggests that employees' perceptions of their own human capital may be biased toward less or not cognizant of firm-specific human capital. This study attempts to answer whether employees' perception is accurate or biased by investigating the relationship between employees' perceived firm-specific human capital and their wages when staying at the current job or transferring to another job. We first develop three new behavioral assumptions to modify the extant theory of perceived firm-specific human capital and then establish competing hypotheses about the situations between employees' accurate and biased perceptions based on the revised theory. Fixed-effects analyses of above 35,000 individual-year observations of 6,700 Korean full-time employees from 2002 to 2018 supported the accurate perception hypothesis of employees, in that employees' perceptions of firm-specific human capital are negatively associated with their wages one year later and the extent is stronger when transferring to another job than when staying at the current job.

Corporate Liquidity and Solvency in Europe during COVID-19

The spread of COVID-19, containment measures, and general uncertainty led to a sharp reduction in activity in the first half of 2020. Europe was hit particularly hard—the economic contraction in 2020 is estimated to have been among the largest in the world—with potentially severe repercussions on its nonfinancial corporations. A wave of corporate bankruptcies would generate mass unemployment, and a loss of productive capacity and firm-specific human capital. With many SMEs in Europe relying primarily on the banking sector for external finance, stress in the corporate sector could easily translate into pressures in the banking system (Aiyar et al., forthcoming).

Firm-specific human capital in different market conditions: Evidence from the Japanese football league

This paper examined how and the extent to which obtaining skills to meet team specific human capital is important to improve football player’s performance by comparing the top league and the second league. Based on panel data of individual players during the 2012–2016 seasons of the Japan Professional Football League (J League), we found; (1) In the top-league, changing team reduced player’s performance and their performance improved as player’s tenure of the team and also tenure of J League increased. (2) returns from acquiring team specific skills on time of play in the game increase and then decrease as years have passed. (3) benefit from moving team depends on the timing of moving, and so rookie players can benefit from moving when team tenure reach 4 years or more. (4) In the second league, neither team tenure nor experience of the professional football player does not influence player’s performance.

The Resource-Based View of the Firm, Human Resources, and Human Capital: Progress and Prospects

We describe the interplay between the resource-based view (RBV) and strategic human resources (HR)/human capital (HC) literatures in select areas of particular interest. In each area, we aim to highlight key issues, review relevant evidence where available, and identify future research needs. We begin by reviewing research on HR-related firm heterogeneity. We then discuss best practices in HR, including evidence of the large apparent value they create. We also consider different views on the value and ease of imitation of best practices, including implementation challenges. Next, we briefly address the key roles of microfoundations and complementarity in helping understand the potential for value creation and value capture through the use of best practices. We then ask whether the use of best practices in the pursuit of competitive parity might warrant greater attention as this may be where the largest potential gains can be made. Finally, we consider a number of developments in the strategic HC literature, especially those related to firm-specific human capital (FSHC). We raise questions with views on issues such as the consequences of FSHC for workers; the definition and measurement of FSHC; whether worker immobility, a key to value capture, is good from a social return (or even a firm) return perspective; and the relative emphasis on value capture and value creation.

Corporate Liquidity and Solvency in Europe During COVID-19: The Role of Policies

The spread of COVID-19, containment measures, and general uncertainty led to a sharp reduction in activity in the first half of 2020. Europe was hit particularly hard—the economic contraction in 2020 is estimated to have been among the largest in the world—with potentially severe repercussions on its nonfinancial corporations. A wave of corporate bankruptcies would generate mass unemployment, and a loss of productive capacity and firm-specific human capital. With many SMEs in Europe relying primarily on the banking sector for external finance, stress in the corporate sector could easily translate into pressures in the banking system (Aiyar et al., forthcoming).

The Market for CEOs

We study the market for CEOs of large publicly-traded US firms, analyze new CEOs’ prior connections to the hiring firm, and explore how hiring choices are determined. Firms are hiring from a surprisingly small pool of candidates. More than 80% of new CEOs are insiders, defined as current or former employees or board members. Boards are already familiar with more than 90% of new CEOs, as they are either insiders or executives who directors have previously worked with. There are few reallocations of CEOs across firms – firms raid CEOs of other firms in only 3% of cases. Pay differences appear too small to explain these hiring choices. The evidence suggests that firm-specific human capital, asymmetric information, and other frictions have first-order effects on the assignment of CEOs to firms.

Firm-Specific Worker Incentives, Employee Retention, and Wage–Tenure Slopes

Strategy scholars have long studied the strategic implications of firm-specific human capital but have almost completely ignored their conceptual dual: firm-specific worker incentives. This paper proposes that firm-level incentives can also vary in firm specificity, and accordingly, firm-specific incentives may help to explain advantages independent of the firm specificity of human capital. Results from a proprietary data set, including data from 284 software development firms and matched employee-level compensation data for 8,208 software developers in 99 of those firms, suggest that firms with higher firm specificity in their incentive bundles may have lower dysfunctional employee turnover rates as well as lower wage–tenure slopes. In other words, these firms may lose fewer employees who they would prefer to keep and may be able to do so while still offering lower wage increases over time than their competitors in the labor market. Thus, firm-specific incentives may provide a viable alternative pathway to human capital–based competitive advantages.

A Jack of All Trades Is a Master of None: The Nexus of Firm-specific Human Capital, Ambidexterity, Productivity and Firm Performance

Drawing on the knowledge-based theory of the firm and organisational learning theory, the present study chiefly examines the impact of firm-specific human capital on organisational ambidexterity and the subsequent effect of organisational ambidexterity on productivity by integrating human capital theory with the theory of transaction cost. The data were garnered from 197 managers in Sri Lanka with self-reported questionnaires in a time-lagged approach. The results disclose strong significant relationships between the variables investigated: a chain of positive relationships between firm-specific human capital and organisational ambidexterity, organisational ambidexterity and productivity, and productivity and firm performance; and mediated relationships between firm-specific human capital and productivity through organisational ambidexterity, and between organisational ambidexterity and firm performance via productivity. The findings of the study push back the frontiers of human resource management literature in many ways. Notably, managers should be cognizant of the effects of firm-specific human capital, organisational ambidexterity, and productivity on firm performance.

The Impact of the Covid‐19 Pandemic on Firms’ Organizational Designs

The Impact of the Covid‐19 Pandemic on Firms’ Organizational Designs

Employees' Perception Bias in Firm-Specificity of Human Capital

This paper extends Raffie and Coff’s (2016) pioneering study of perception bias in firm-specific human capital that can be influenced by organizational tenure, organizational commitment, and on-the-job training. Drawing on the signaling theory, we investigate the role of wage as another variable that can affect the perceptions of firm-specificity with a larger sample and a model better fitted to panel data. We also examine the interaction of organizational tenure and organizational commitment. The analyses of Korean full-time employees with random effects ordered probit models support the relationship between wage and perceived firm-specific human capital and the interaction of organizational tenure and organizational commitment but not the interaction of organizational tenure and wage. The results suggest that employees’ wages can function as a signal of an employer in which employees’ perceptions of the characteristics of human capital investments depend on their wages. Also, committed employees are more likely to invest in firm-specific human capital as their organizational tenure increases than are less committed ones.

Employee Mobility in Family and Non-Family Firms: The Role of Family Firm-Specific Human Capital

Drawing on human capital theory of employee mobility, we develop theory regarding family firm-specific human capital. Specifically, we argue that nonfamily employees of family firms are less likely to change their job than employees of nonfamily firms. We then examine employees’ mobility and the compensation outcome when such jobs changes occur. To examine these relationships, we utilize a unique dataset of all Swedish employees’ job changes from 2001 to 2012. Overall, with supportive empirical results, the present study offers a deeper understanding of employees’ mobility towards family and nonfamily private firms.

Commuting and the Motherhood Wage Gap: Evidence from Germany

In the present study, we analyze how childbirth-related changes in commuting contribute to the motherhood wage gap, which in turn accounts for a large part of the gender pay gap. Derived from human capital theory and job search theory, we examine various mechanisms that might explain why reduced commuting distances after childbirth come along with wage reductions for mothers. The empirical analyses are based on data from the German Socio-Economic Panel (GSOEP) 2001–2017, which are analyzed within a fixed effects (FE) panel framework (n = 41,111 observations from 7183 persons). Firstly, the results show that the transition to first parenthood is associated with a 33% decrease in the commuting distance of women, while the transition to fatherhood has no effect. Secondly, mothers who substantially reduce their commuting distance after the transition to parenthood (who amount to 30% of all mothers in our sample) show an increased wage penalty (−18.4%), compared to mothers who do not reduce their commuting distance (−8.7%). Accordingly, 23% of the motherhood wage penalty can be attributed to wage losses related to the reduction in commuting distance. Thirdly, wage penalties for mothers who change to a job closer to their place of residence can be partly explained by the loss of firm-specific human capital. In addition, the wage penalty for commuting is a consequence of women taking jobs that are less suited to their skills profile and moving to smaller companies.

The Market for CEOs

We study the market for CEOs of large publicly-traded US firms, analyze new CEOs’ prior connections to the hiring firm, and explore how hiring choices are determined. Firms are hiring from a surprisingly small pool of candidates. More than 80% of new CEOs are insiders, defined as current or former employees or board members. Boards are already familiar with more than 90% of new CEOs, as they are either insiders or executives who directors have previously worked with. There are few reallocations of CEOs across firms – firms raid CEOs of other firms in only 3% of cases. Pay differences appear too small to explain these hiring choices. The evidence suggests that firm-specific human capital, asymmetric information, and other frictions have first-order effects on the assignment of CEOs to firms.

Promotion Signaling and Human Capital Investments

In a world characterized by asymmetric learning, promotions can serve as signals of worker ability, and this, in turn, can result in inefficient promotion decisions. If the labor market is competitive, the result will be practices that reduce this distortion. We explore how this logic affects human capital investment decisions. We show that, if commitment is possible, investments will be biased toward the accumulation of firm-specific human capital. We also consider what happens when commitment is not possible and show a number of results including that, if investment choices are not publicly observable, choices are frequently efficient. (JEL D82, J24, J31, M12, M51)

Measuring Organisation Capital at the Firm Level: A Production Function Approach

Organisation capital is one of the key intangible assets of firms, driving innovation and firm performance. Measuring this asset has been notoriously difficult, however. Differently to other intangible assets, firms do not build up organisation capital primarily by monetary investment but rather through establishing new organisational routines and building up trust, which often do not coincide with any financial expenditure. Quantifying such efforts at the firm level has largely failed so far. This paper takes up a traditional production function approach which includes, in addition to labour and tangible assets, investment in all measurable intangible assets (technological and non-technological knowledge, software and databases, firm-specific human capital, brand equity), but excluding organisation capital. The residuum of the estimation is considered as a measure of a firm' organisation capital. Using panel data from the German innovation survey, we find higher organisation capital in young and small firms. Our measure tends to show a u-shaped link to qualitative indicators such as organisational innovation.

M&As, Employee Costs and Labor Reallocation

I study the impact of M&As on labor market outcomes of employees in target firms. Using a matched employer-employee dataset linked with hand-collected data on M&A activity in Brazil, I estimate the magnitudes of employee costs and document the underlying sources of earnings changes in the post-merger period. I find that M&As are associated with large and persistent earnings declines for employees in target firms, which are largely explained by employment losses from displacement and wage losses from reallocation. Declines in employer wage premiums in the post-merger period account for the majority of wage losses, with 47% of displaced employees transitioning to lower-wage firms. Finally, I provide evidence that the effects are concentrated on employees with lower skills, and increase with the level of firm-specific human capital. Taken together, my findings imply that the personal costs of M&As to employees are large and long-lasting, and highlight the role of displacement and loss of firm-specific wage premiums as the primary contributing factors of earnings declines in the post-merger period.

Employment Adjustments of Regular and Non-Regular Workers to Exogenous Shocks: Evidence from Exchange-Rate Fluctuation

The authors investigate the adjustments in employment of regular and non-regular workers, exploiting the exchange-rate fluctuation and heterogeneous dependence on international trade across firms as a source of exogenous variation. An analysis of panel data of Japanese manufacturers reveals that the appreciation of the Japanese yen spontaneously decreased the sales of exporters and the employment of non-regular workers, but it did not reduce the employment of regular workers. This finding provides support for the claim that firms are likely to adjust the employment of non-regular workers to absorb exogenous shocks and to insulate regular workers from the shocks in an uncertain business environment. In exploring the mechanism driving these results, the authors also find that exporters use the employment of non-regular workers and wages of regular workers as adjustment margins for the exchange-rate fluctuation to hoard regular workers, who presumably hold higher levels of firm-specific human capital.

Perceived Firm-specific versus Task-specific Human Capital and Turnover Intention

This paper examines how employee perceptions of firm-specific human capital and task-specific human capital differ in association with turnover intention, especially depending upon the distinctive ...

Managers beyond borders: side-by-side management in mutual funds and pension funds

Firms of collective investment industries, such as mutual and pension funds, are knowledge-intensive organizations that share managers between their multi-businesses to transfer the know-how of their employees and take advantage of the firm-specific human capital. This paper analyses the determinants and consequences of the simultaneous management (also called side-by-side or SBS management) of mutual and pension funds. In a sample of UK domestic equity mutual and pension funds, we find that managers are more likely to become SBS managers whether they belong to larger firms, have prior experience handling multiple funds, possess higher tenure, are female, and run smaller funds. Furthermore, SBS managers outperform their peers, showing the value of sharing human resources among diversified firms. Our results also show that holding similar portfolios between the funds of a manager may facilitate the multi-fund management. Top performers (SBS and non-SBS) present higher portfolio similarities than bottom performers, and higher fund similarities allow top managers to attract flows between their funds. However, top non-SBS managers erode performance due to higher portfolio similarities.