Human Capital Deficiencies, Operational Risk Disclosure Intensity, and FinancialPerformance: Evidence from Banks and Insurance Companies across Six Economies
DOI:
https://doi.org/10.33152/jmphss-10.3.6Keywords:
Human Capital Deficiencies, Human Capital Risk , Operational Risk Exposure , Strategic Human Resource Management , Organisational Resilience , Financial PerformanceAbstract
Operational controls fail to function independently. Within banks and insurance businesses, their efficacy is heavily reliant on the personnel in charge of executing them, challenging existing practices, and responding effectively when issues arise. This study looks into the relationship between worker vulnerabilities and financial performance, whether these vulnerabilities are reflected in the extent of operational risk disclosure, and how High-Performance Work Systems (HPWS) affect this relationship. From 2020 to 2025, the study used a balanced panel of 36 publicly traded banks and insurance companies from six economies, resulting in 216 firm-year observations. HCD and HPWS are quantified using multidimensional formative indicators, which are weighted using principal component analysis. ORDI assesses the proportion of relevant operational risk topics reported by each firm. The empirical analysis incorporates both firm and year fixed effects, and statistical inference is based on CR2 standard errors clustered at the institution level. HCD is negatively related to return on assets (beta = -0.561, CR2 SE = 0.058, p < 0.001) and positively related to ORDI (beta = 0.640, SE = 0.047, p < 0.001). After including both factors into the performance model, ORDI still shows a significant negative correlation with performance (β = -0.428, SE = 0.068, p < 0.001). The calculated coefficient for HCD similarly decreases to -0.287 (SE = 0.052, p < 0.001). In addition, the interaction between HCD and HPWS is negative and statistically significant (β = -0.157, SE = 0.073, p= 0.031). HCD’s conditional effect drops from 0.797 when HPWS is low to 0.483 when HPWS is high. These results show connections rather than causal effects. Because ORDI measures reporting breadth rather than proven loss severity, a high score could imply operational strain, increased transparency, or both. Ultimately, the data establish a relationship between workforce capabilities, risk reporting, and profitability, implying that better established HPWS policies may mitigate the disclosure reaction associated with HCD.
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