How Human Capital Transforms into Business Performance: The Mediating Effect of Innovation

Abstract

This study explored the relationship between human capital and business performance, using innovation as a mediator. 128 young startup founders in Kerala were asked to complete a 34-item questionnaire for this quantitative study in order to gather information on human capital, innovation, and the financial and non-financial performance of businesses. PLS-SEM was used to evaluate the proposed framework. The firm’s financial performance was influenced by human capital, both directly and indirectly. Moreover, innovation plays a mediated role between the two constructs. However, human capital has no indirect effect on a firm's non-financial performance, so innovation has no mediated effect between human capital and non-financial performance. This paper empirically proves that investment in human capital influences the financial and non-financial performance of enterprises. This study reveals that there is a mediating effect of innovation on the relationship between human capital and financial performance, but innovation has no mediating effect on the relationship between human capital and non-financial performance