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CEP discussion paper

The Impact of an Innovative Human Resource Function on Firm Performance: the Moderating Role of Financing Strategy


The current study examined the impact of the human resource function and financing strategy on the financial performance of 104 UK manufacturing firms. Hypotheses are drawn from a resource-based perspective on human resource management and a financial theory perspective on capital structure. Results show that an innovative HR function is significantly related to economic performance. However, the relationship between an innovative HR function and economic performance was moderated by the firm¿s financing strategy. Firms obtained higher returns from an innovative HR function when pursuing a low leveraging (debt) financing strategy, a finding consistent with modern finance theory notions that firmspecific strategic assets provide greatest value when financed primarily through equity as opposed to debt.


J Dawson, Neal Knight-Turvey, Andrew Neal and M West

April 2004     Paper Number CEPDP0630

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This CEP discussion paper is published under the centre's Labour markets programme.