What drives firms to invest in training and developing employees? Time-dependent effects of firm internal and external contingencies

Abstract

Drawing on the cost–value framework, the present study identifies internal and external firm-specific factors as predictors and firm performance as a contingency to explain the level and temporal growth of firm investment in training and development (T&D) over time. The theoretical propositions are empirically validated by analyzing multisource longitudinal data from 172 firms over a period of three years. The analysis shows that human capital quality and technology change are positive predictors of the level of T&D investment. The growth curve analysis demonstrates that high-performing firms increase T&D investment when they are managed by professional managers and possess high-quality human capital. By contrast, low-performing firms decrease T&D investment when they are controlled by owners, possess low-quality human capital, and operate under low technology change. The current analysis offers intriguing insights into how firms with differing internal and external situations allocate resources to T&D and increase or decrease their T&D investment over time depending on their performance and resulting financial slack. The current investigation on the temporal trajectories of T&D investment under distinct firm-specific situations and contingencies considerably expands the existing literature based on cross-sectional static perspectives.

Keywords:

• Training and development
• cost–value framework
• contingency theory
• owner management control
• human capital quality
• technology change
• firm performance

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by the Institute of Industrial Relations, Seoul National University and Management Department, Nanjing University Business School.