Article2019

The long-term effect of training and development investment on financial performance in Korean companies

38 citations0/0 files storedInternational Journal of Manpower

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Human Resource Development and Performance Evaluation Human Resource and Talent Management Intellectual Capital and Performance Analysis

Abstract

Purpose The purpose of this paper is to examine the relationship between training and development investment and financial performance over time. Human capital literature suggests that training and development investment may not immediately affect financial performance but may instead create effects that are realized over time. However, most existing cross-sectional research explores the influence of training and development investment on performance while overlooking training and development investment’s long-term effects. Design/methodology/approach This study focuses on the recovery period following the Great Recession circa 2008 in the South Korean business context. Longitudinal data from 312 firms, including four distinct waves, were used. Latent growth modeling was used to help identify a pattern of reciprocal relationships between training and development investment and financial performance over time. Findings The results indicate that even though growth in training and development investment is stable over time, there are significant between-firm differences in training and development investment trajectories over time. Prior financial performance was shown to be positively related to higher levels of training and development investment, but it was not related to growth in training and development investment. The initial level of training and development investment did not predict subsequent profit, but growth in training and development investment was positively related to future financial performance. Originality/value This study suggests that as an organization’s training and development investment increases over time, a delayed effect on financial performance may emerge because of this accumulated investment. Ultimately, the results highlight the importance of having a stock of human capital, rather than concentrating upon momentary flows that yield immediate effects.

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References

1991Firm Resources and Sustained Competitive Advantage 2004Firm resources and sustained competitive advantage 1990Absorptive Capacity: A New Perspective on Learning and Innovation 1990Comparative fit indexes in structural models.1989Asset Stock Accumulation and Sustainability of Competitive Advantage 1990Structural Model Evaluation and Modification: An Interval Estimation Approach 1973A Reliability Coefficient for Maximum Likelihood Factor Analysis 2002Deliberate Learning and the Evolution of Dynamic Capabilities

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