Impact of human capital investment on firm performance: An empirical study of Chinese industrial firms

Abstract

As the technological innovation becomes the vitality of enterprise development, firms are increasingly realizing that, employees’ knowledge and skills are the unique resources to gain the competitive advantages.Human capital is becoming the driving force to promote the enterprise development.Using data from Chinese Industrial Enterprises Database, this paper examines how human capital investment (including education and training investment) affects the firm performance. The results show that, employees’ educational level has a significantly positive impact on firm performance; an inverted “U” shaped relationship exists between training investment and firm performance. Also, there is a negative interaction between employees’ education and training investment. The lower employees’ education is, the higher impact training would have on the firm performance. In addition, we also investigate the impact of industry types and find that, in the lower labor-intensive industries, employees’ educational level will have a greater impact on performance, while in the high labor-intensive industries, the effect of training investment will be greater.