The Relationship Between HR Practices and Firm Performance: Examining Causal Order

Abstract

Significant research attention has been devoted to examining the relationship between HR practices and firm performance, and the research support has assumed HR as the causal variable. Using data from 45 business units (with 62 data points), this study examines how measures of HR practices correlate with past, concurrent, and future operational performance measures. The results indicate that correlations with performance measures at all three times are both high and invariant, and that controlling for past or concurrent performance virtually eliminates the correlation of HR with future performance. Implications are discussed.