Human resource management practices and firm innovation: mediating role of human capital

Abstract

Firms’ ability to innovate becomes a more significant concern over the hypercompetitive and dynamic business environment. Within this context, how to promote innovation in organisations becomes challenging. Many studies far less focused on the role of human resource management in promoting firm innovation. Since the human resource management practices vary from country to country and firm to firm, the findings of the studies limit its application in a diverse context. Sadly, there is bereft of such studies recorded in many developing countries. Consequently, the study aims at investigating the relationship between human resource management practices and firm innovation and the mediating role of the human capital of such relationship. This study deploys PLS-SEM to test the hypotheses in a sample of 127 firms operating in Sri Lanka. The data were collected through a self-reported questionnaire. The result shows that human resource management practices are significantly, positively, related to human capital, which positively affects firm innovation. The findings support that human capital plays a mediating role between human resource management practices and firm innovation. Finally, this study discusses the implications and highlights the future research directions.