Lobour turnover cost, human capital investment and firm performance: Case of a Ugandan financial institution

Abstract

This research investigates the relationship between labour turnover cost, human capital investment, employee effectiveness and firm performance. Labour turnover cost, human capital investment and employee effectiveness were identified as the independent variables and firm performance as the dependent variable. The components of labour turnover cost included new hire, replacement and preventive costs. Human capital investment consisted of training, education, and knowledge and skills development. The mediating variable of employee effectiveness was studied using workforce adaptability, engagement, proficiency and performance. Firm performance was perceived to be financial and consisted of profitability, earnings and market share. Information was gathered using close ended questionnaire from a sample of 151 respondents who are the employees. Data obtained from the research instrument was then statistically analyzed using the Statistical Package for Social Scientists (SPSS). Simple correlation analysis showed that the relationship between labour turnover cost and firm performance was not significant, implying labour turnover has no impact on firm performance. Significant relationship was found to exist between human capital investment and employee effectiveness, human capital investment and firm performance, and employee effectiveness and firm performance. Through linear regression analyses it was concluded that firm performance is greatly impacted upon by employee effectiveness. The effect of human capital investment on firm performance without the mediating variable of employee effectiveness was found not significant. The study contributes to the bank of findings relating to the concepts of labour turnover cost, human capital investment and firm performance.