Do small firms fare better without a professional human resource manager?

Abstract

We examine the direct and indirect effects of human resource (HR) informality—that is, not having a professional HR manager in post—on employee outcomes in growth-oriented small firms. Drawing from literature of principal–agent relationship and trust, we theorise a moderated-mediating model between HR informality and unfavourable employee outcomes through owner-manager's distrust during firm growth. Based on matched employer–employee data from 543 small firms and their 4853 employees in the United Kingdom, the empirical results show a positive and significant association between HR informality and owner-managers' distrust of staff, especially in multiple-site (often a manifestation of growth-oriented) small firms. Through this path, HR informality has a significant and adverse indirect effect on firm recorded staff voluntary turnover, absenteeism, number of dismissals and staff perceived collective trust in management, which counteracts its weak positive direct effect, thus leads to an overall negative impact. The theoretical and practical implications are discussed.