Linking Hrm and Small Business Performance: An Examination of the Impact of Hrm Intensity on the Productivity and Financial Performance of Small Businesses

Posted: 9 Nov 2009

See all articles by Jeroen Delmotte

Jeroen Delmotte

KU Leuven - Faculty of Business and Economics (FEB)

Johan Maes

affiliation not provided to SSRN

Dries Faems

WHU - Otto Beisheim School of Management

Anneleen Forrier

Katholieke Universiteit Leuven - Faculty of Business and Economics (FBE)

Luc Sels

Katholieke Universiteit Leuven - Faculty of Business and Economics (FBE)

Date Written: 2006

Abstract

In order to determine whether human resourcemanagement (HRM) is profitable for small organizations, a conceptual frameworkbased on human capital theory and bankruptcy prediction models is developed.Information is based on the operational and financial performance of 416units/organizations selected from the Belfirst data file for the period1999-2000. HRM intensity variables(training, selection, compensation, careers,performance management, and participation), and performance measures (voluntaryturnover, labor productivity, and financial performance) were tested. Resultsindicate that HRM intensity strongly influences productivity. Conversely, HRMintensity has a negative impact on voluntary turnover. It is alsofoundthat investments in HRM impact small firms' financial health.First,productivity is stimulated by investments in HRM; second, the shareof personnel costs/value added is lowered by increased productivity; and third,profitability, solvency, and liquidity are increased by a reduction inpersonnel costs/value added.The total effect of HRM intensity onprofitability is positive and can be explained by the impact of HRM intensityon operational performance outcomes (e.g., lower levels of dispute, betterquality, and more innovation). The findings illustrate how intensive HRM canprovide surplus value for small businesses. (NEE)

Keywords: Voluntary turnover, Human capital, Bankruptcy, Earnings, Human resource management, Firm performance, Firm management, Firm productivity

Suggested Citation

Delmotte, Jeroen and Maes, Johan and Faems, Dries and Forrier, Anneleen and Sels, Luc, Linking Hrm and Small Business Performance: An Examination of the Impact of Hrm Intensity on the Productivity and Financial Performance of Small Businesses (2006). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN: https://ssrn.com/abstract=1501549

Jeroen Delmotte (Contact Author)

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium
+32 16 326892 (Phone)
+32 16 326732 (Fax)

HOME PAGE: http://www.econ.kuleuven.ac.be/jeroen.delmotte

Johan Maes

affiliation not provided to SSRN

Dries Faems

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

Anneleen Forrier

Katholieke Universiteit Leuven - Faculty of Business and Economics (FBE) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Luc Sels

Katholieke Universiteit Leuven - Faculty of Business and Economics (FBE) ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

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