Professional Human Capital Flows: Temporal Structure of Loss, Replacement and Contingent Bundling Effects on Firm Performance

While resource based theory (RBT) addresses the importance of both possessing and orchestrating resources that have the potential of creating competitive advantage, it suggests little about the effects of unintentionally losing such resources. Further, RBT is silent about the manners in which firms replace after such losses by acquiring external resources. Attending to these gaps, this study considers the loss of professional human capital (PHC) in a panel data set of the largest U.S. based law firms, the contingencies of loss that effect subsequent firm performance, and the manner in which firms replace with new PHC. Results suggest that losing PHC with less firm specificity and PHC that has greater redundancy in geographic locations weakens the negative effects of loss. Additionally, organizational strain is theorized to cause replacement of PHC with external PHC hires similar to those already in the firm. Results show that this is the case for greater volumes of PHC loss and greater geographic diversification, but the opposite is true of prior performance and the manager-subordinate ratio. Implications for RBT, the attraction-selection-attrition (ASA) model, and strategic human capital theory are discussed.