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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.