The Role of Leadership in the Relationship Between Human Resource Management and Firm Performance

An abundance of evidence supports a relationship between strategic human resource management (SHRM) and firm level performance outcomes. More recently, researchers have pointed to social exchange relationships to explain the process through which SHRM leads to performance. While some evidence exists to support the connection between SHRM, exchange relationships and firm performance, little is known about how human resource management interacts with other important variables in the exchange process such as managerial leadership. Using data from 253 offices with a combination of manager and employee responses and time lagged performance; we demonstrate that both SHRM and leadership are important in establishing exchange relationships. More importantly, it appears that effective leadership enhances the impact of SHRM in the formation of exchange relationships and in turn performance.