Interdependence between Employee Education and R and D Investment in Impacting IT Firm Performance

An educated workforce is critical for IT firms´ ability to innovate and compete in the market. Surprisingly, there is very little research on how education contributes to the profitability of IT firms and how educated employees contribute to a firms´ research and development activities. Using theories from human capital literature, we propose a model to measure how education impacts firm profits in IT industries and how the relation is moderated by a firm´s R and D investments. Our results suggest that education is associated with a positive firm performance in IT industries. We also show that the interaction effect between R and D and education is positive, suggesting that IT firms which invest in highly skilled employees are in a better position to take advantage of R and D investments. This paper adds several new insights to the literature on human capital and firm performance.