Antecedents of small business financial performance: the role of human resource management practices and strategy

Abstract

There is noted emphasis on the role of small businesses as conduits for economic development especially in emerging economies. Given this, there is need for constantly seeking for ways to assist small businesses achieve success. Calls exist in the literature to investigate the combined role that strategy and human resource management practices can play leading to efforts of financial success. A structured questionnaire was utilised and data collected from 401 small businesses operating in the Eastern Province of South Africa. Pearson product–moment correlation and hierarchical regression were used in the data analysis. The results confirm that a direct relationship exists between strategy and financial performance. Further, the relationship is made significant only through the mediation effect of human resource management practices. To fully realise the enactment of strategy within small businesses there is need to pay attention to the role that human resource management practices may potentially have on financial performance. Small business owner-managers need to ground their strategies with sound human resource management practices. Through this, firm financial performance can be attained. The paper sheds light and presents a model that illustrates the mediating role of human resource management practices on the relationship between strategy and financial performance.