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.