HR System Complementarity: Examining Effects on Firm Performance and Roles of HR Department

Although a lot of HR research has proposed the organizational effectiveness of HR system complementarity, there remains a need for theoretical and empirical evidence to examine how the internal fit of HR practices affects firm profits in a parsimonious way. Based on the previous findings on HR system complementarity and the ability-motivation-opportunity (AMO) framework, this study hypothesizes that there are positive effects of HR system complementarity on firm performance and that those effects are anticipated by the presence of the HR department. To examine this, this study used two different datasets: (1) the Human Capital Corporate Panel date in 2005 and (2) the U.S. longitudinal dataset involving Thomson Reuters Asset4 data on firm environmental, social, and corporate governance (ESG) and COMPUSTAT. Especially, this study utilizes the Cobb-Douglas specifications for capturing the complementarity effects of the HR system. The results supported our hypotheses. We discuss the theoretical implications of this study in terms of the contributions to the AMO framework, the consistent measurement of HR practices, and a new method for capturing the effects of HR system complementarity.