The Financial Impact of High-Performance Work Practices

The Moderating Effects of Labor Market Flexibility and Labor Market Efficiency

  • Clyde Eirikur Hull Saunders College of Business, Rochester Institute of Technology
  • Sandra Rothenberg Rochester Institute of Technology
  • Sebastian Vogt
Keywords: High-performance work practices, High-performance work systems, Institutional theory, Labor market, Performance, International

Abstract

High-performance work practices (HPWP) have been found to increase financial performance. Institutional theory suggests that this effect may be moderated by labor market institutions, such as labor market flexibility and labor market efficiency. We explore this relationship using a combined data set comprised of data on HPWP from ASSET4, financial and other company-level data from the Worldscope Database, and national institutional context data from the World Economic Forum’s Global Competitiveness Report. With an international sample of roughly 20,000 archival firm-year observations across a seven-year period, we use pooled OLS regression models with robust standard errors, clustered at the firm level. We find support for all predicted relationships except for a direct relationship between labor market flexibility and performance: Strong formal institutional pressure (low labor market flexibility) increases the positive financial impact of HPWP. Strong informal institutional pressure (high labor market efficiency) affects the financial performance of businesses directly and positively, and also indirectly by increasing the positive effect of HPWP on financial performance. We conclude that companies seeking the most financially-rewarding approach to human resource management (HRM) should engage in HPWP, encourage the local population to expect and value such practices (e.g., by promoting women’s rights), and, counterintuitively, encourage more government regulation of business around HRM practices.

Author Biographies

Clyde Eirikur Hull, Saunders College of Business, Rochester Institute of Technology
Clyde Eirikur Hull holds the rank of Professor in the Department of Management, International Business, and Entrepreneurship in the Saunders College of Business at RIT. He has published in Strategic Management Journal, Journal of Management Studies, and Journal of Product Innovation Management, among others.
Sandra Rothenberg, Rochester Institute of Technology
Pro. Sandra Rothenberg holds the rank of Professor in the Department of Management in the Saunders College of Business at RIT. She is also Department Chair of the Department of Public Policy in the College of Liberal Arts at RIT. She has published in Strategic Management Journal, Production and Operations Management, and Journal of Management Studies, among others.
Sebastian Vogt
Dr. Sebastian Vogt earned his doctorate from the Julius Maximilians University of Würzburg. He has worked for Deloitte, where he holds the rank of Manager, in technology and management consulting since graduation.
Published
2020-02-06
How to Cite
Hull, C., Rothenberg, S., & Vogt, S. (2020). The Financial Impact of High-Performance Work Practices. Contemporary Management Research, 15(4), 247-272. https://doi.org/10.7903/cmr.19623
Section
Corporate social responsibility and business ethic