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Industry competition and firm human capital

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Abstract

This paper argues that objective and subjective human capital may have substantial impact upon organizational performance in a competitive context. Objective human capital pertains to such features as education and experience, whereas subjective human capital relates to personality characteristics. The argument is illustrated by presenting the results of two empirical studies: (1) a cross-section 1990–1991 analysis of about 50 incumbents in the Flemish furniture industry-concentrating on the impact of subjective human capital, particularly the Chief Executive Officer's (CEO's) locus-of-control personality, on financial performance; and (2) a longitudinal 1970–1992 analysis of a cohort of 100 entrants into the Dutch audit industry-focusing on the influence of objective human capital, particularly education and experience, on exit by merger and acquisition (M&A) or “diaspora”. Both studies support the claim that objective and subjective human capital matters: for example, Flemish furniture firms headed by a CEO with an internal locus-of-control trait reach higher levels of financial performance, and Dutch audit firms with a high proportion of personnel with business experience are more likely to exit the industry over the years as a result of diaspora. Finally, the data of the Flemish furniture and Dutch audit industries are re-analyzed so as to compare the impact of human capital variables on small-firm performance in both industries. This re-analysis reveals that in both industries the impact of human capital variables is more pronounced in large firms compared to small businesses.

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Authors and Affiliations

  1. Faculty of Economics and Business Administration, University of Limburg, P. O. Box 616, 6200 MD, Maastricht, The Netherlands

    Christophe Boone & Arjen van Witteloostuijn

  2. Department of Management Sciences and MANOR (MAastricht Nexus of Organization Research), P.O. Box 616, 6200 MD, Maastricht, The Netherlands

    Christophe Boone & Arjen van Witteloostuijn

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  1. Christophe Boone
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  2. Arjen van Witteloostuijn
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Boone, C., van Witteloostuijn, A. Industry competition and firm human capital. Small Bus Econ 8, 347–364 (1996). https://doi.org/10.1007/BF00389553

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