Micro-Foundations of Firm-Specific Human Capital: When Do Employees Perceive Their Skills to be Firm-Specific?

54 Pages Posted: 10 Sep 2014 Last revised: 25 Mar 2015

See all articles by Joseph Raffiee

Joseph Raffiee

University of Southern California - Marshall School of Business

Russell Wayne Coff

Wisconsin School of Business

Date Written: December 31, 2014

Abstract

Drawing on human capital theory, strategy scholars have emphasized firm-specific human capital as a source of sustained competitive advantage. In this study, we begin to unpack the micro-foundations of firm-specific human capital by theoretically and empirically exploring when employees perceive their skills to be firm-specific. We first develop theoretical arguments and hypotheses based on the extant strategy literature, which implicitly assumes information efficiency and unbiased perceptions of firm-specificity. We then relax these assumptions and develop alternative hypotheses rooted in the cognitive psychology literature, which highlights biases in human judgment. We test our hypotheses using two data sources from Korea and the United States. Surprisingly, our results support the hypotheses based on cognitive bias – a stark contrast to the expectations embedded within the strategy literature. Specifically, we find organizational commitment and, to some extent, tenure are negatively related to employee perceptions of the firm-specificity. We also find that employer provided on-the-job training was unrelated to perceived firm-specificity. These findings suggest that firm-specific human capital, as perceived by employees, may drive behavior in ways not anticipated by existing theory – for example, with respect to investments in skills or turnover decisions. This, in turn, may challenge the assumed relationship between firm-specific human capital and sustained competitive advantage. More broadly, our findings may suggest a need to reconsider other theories, such as transaction cost economics, that draw heavily on the notion of firm-specificity and implicitly assume widely shared and unbiased perceptions.

Keywords: Firm-Specific Human Capital, Competitive Advantage

JEL Classification: J24, J41, F23, J4, J3, M5

Suggested Citation

Raffiee, Joseph and Coff, Russell Wayne, Micro-Foundations of Firm-Specific Human Capital: When Do Employees Perceive Their Skills to be Firm-Specific? (December 31, 2014). Available at SSRN: https://ssrn.com/abstract=2493511 or http://dx.doi.org/10.2139/ssrn.2493511

Joseph Raffiee

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd, HOH 431
Los Angeles, CA California 90089-1424
United States

Russell Wayne Coff (Contact Author)

Wisconsin School of Business ( email )

975 University Avenue
Madison, WI 53706
United States

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