Gaining Competitive Advantage from Human Capital: Role of Markets and Firm Structure
This dissertation develops new theory and evidence to show that human-capital based competitive advantage of firms varies with external markets, firm structure, and firm openness to factor markets. The dissertation includes three empirical studies.
The first study examines how labor market frictions due to strict employment protection regulations can be a source of competitive advantage for affiliates of corporate groups over standalone firms in environments where benefits from internal market flexibility are high. Utilizing the variation in labor laws and capital market development across 16 West-European countries, the study finds a stronger competitive advantage for group affiliates in countries with rigid labor markets, but flexible capital markets. In these environments, group affiliates are more prevalent and they outperform standalone firms in terms of growth and profitability.
The second study examines how structural features of a firm and the nature of managerial resources interact to influence top managerial mobility in corporate groups. Using a novel dataset on intragroup managerial mobility, the study documents decreased internal redeployment of managers to affiliates with minority shareholders, especially if those managers are high-performing. These results are driven by hired managers. In contrast, family-related managers, who are related to the controlling shareholders, are more likely to be deployed to partly-owned, strategically peripheral and affiliates operating in regions where societal trust levels are low. These results suggest the importance of trust as a managerial attribute.
The third study examines how disclosure of firm performance affects top manager mobility into and out of firms. Using managerial mobility data for 610,000 managers in over 32,000 corporate groups across Europe, the study shows the key tradeoffs in managerial markets associated with disclosure: disclosing firms lose more managers, especially if firms are performing well. Importantly, those departing managers leave to larger firms and to positions of greater responsibility. However, the results suggest that disclosing firms are better able to acquire new managers from other high-performing firms. Further, survey evidence suggests that disclosing firms can mitigate managerial outflows by implementing better human capital management practices. The study contributes to understanding how firms can capture value from strategic human capital, while protecting and refreshing sources of competitive advantage that are embodied in firm's top management.
Taken together, these three studies contribute to understanding conditions under which firms can capture value from strategic human capital, and the key tradeoffs associated with accumulating and protecting knowledge resources while tapping into external knowledge flows.
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