Human capital and operating Performance

Authors: Chao-Ling Lin; Yahn-Shir Chen;

Journal: Chia Da Management Review. Dec. 2009, 29(2): 83-130.

Keywords: Human capital; Audit firm; Performance

Abstract:
Recently, increasingly severe regulation and stringent market competition deteriorate the operating environment in which auditors practise. Accordingly, it is undoubtedly an important lesson for auditors to adapt to the practicing situation to survive and to sustain competitive advantages in the audit market. As a professional organization, audit firm offers various services by knowledge-based human capital. However, few prior studies address the operating performance of audit firm and the role played by human capital in creating the operating performance. To fill the gap, this study estimates the efficiency and return to scale by Data Envelop Analysis. Then, this study investigates the effects of high quality human capital upon operating performance in terms of resource-based view. Total observations used in this study are grouped into large and small firms by production technical level. Empirical results indicate that Big 4 international firms and small firms with number ofe mployee equal to and more than 9 possess higher efficiency. For return to scale, most of the Big 4 international firms are in the optimal s cale of production. Non-Big 4 firms adapt their scale aggressively in the long-run tendency. Of the small firms, firms with number of employee less than 9 are in the increasing return to scale and firms with number of employee equal to and more than 9 are in the decreasing return to scale. Finally, audit firms with more experienced upper-level professionals improve their technical efficiency significantly. In addition, audit firms with more expenditure on educational training significantly increase technical efficiency. However, for either large or small firm, more upper-level professionals with high academic degree are unable to improve their technical efficiency.