Linking Human Capital To Firm Performance: The Mediating Role Of Organizational Learning Capability In Nepali Smes

Abstract

This study examined how human capital would affect the performance of a firm and the effect the presence of organizational learning capacity within the firm could have on the relationship in case of Nepali Small and Medium Enterprise (SMEs). The survey used responses from 246 Owners and Managers of SMEs in Nepal. The analysis used EFA (Exploratory Factor Analysis) to establish/affirm factor structure, model fit, validity and reliability testing was done using CFA (Confirmatory Factor Analysis) while SEM (Structural Equation Modeling) was used to test and validate relationships. Higher levels of human capital in the firm had a positive effect on its overall performance. The study further revealed a partial mediation between human capital and firm performance through organizational learning capability. This showed that an organization’s ability to improve human capital would have a sizable effect on its ability to perform. The study also showed that development of human capital and organizational learning capability needed to be carried out in parallel as the partially mediating effect suggested that human capital leads to firms’ performance not only through organizational learning capability through other mechanisms as well. This underlines the need for improving the skillsets and knowledge of employees, owners and managers within SMEs to while also continuing to develop mechanisms to more effectively acquire and utilize knowledge while reinforcing learning within their organizations to help them perform better.