The Relationship between Human Capital Efficiency and Financial Performance of Dutch Production Companies

Abstract

Nowadays, Human Capital is recognized as the key factor in enhancing corporate performance of companies. However, very little is known about the efficiency of human capital in value creation for organizations and the key factors that can improve Human Capital Efficiency (HCE). This research aims to investigate the efficiency of Human Capital and its impact on the financial performance of Dutch production companies. Using data from 33 Dutch production companies for a period of 6 years (2007-2012) and applying the human capital component of the VAIC methodology the monetary value created by the companies’ knowledge workers is measured. Multiple linear regression models are used for analyzing the relationship between the performance of Human Capital and organizational performance measures including ROTA, ROE and EP. The study results revealed that there is positive relationship between HCE and all three corporate performance measures, amongst which it should be referred to the strongly statistically significant relationship between HCE and Employee Productivity (EP). This study contributes to the existing human capital theories by revealing the HCE of Dutch production companies and its impact on companies’ financial performance. Furthermore, it is significant in the sense that it will provide the companies’ managers with vital information required for making decisions on proper deployment of their human capital and investment in this strategic asset.

Keywords: Human Capital Efficiency, Return on Total Asset, Return on Equity ,Employee Productivity, Value Added Intellectual Coefficient, Corporate Performance, Dutch production companies