An analysis of the effect of temporary/permanent contracts on firm efficiency performance: evidence from South Korea

Abstract

PurposeBecause no international accounting policy exists to mandate human capital (HC) information must be reported on financial reports, the association between workforce HC and firm performance/efficiency is not well-established. South Korea is a rare example with high HC reporting quality, as well as relatively high national productivity. On the other hand, in some developed countries (such as the UK), HC reporting quality and productivity is low. Moreover, there is an increasing propensity to offer employees non-standard contracts. Thus, because of a divergence in HC reporting quality internationally, the South Korean sample can provide valuable insights to countries with weak HC reporting quality about the association between contract quality and firm performance/efficiency.Design/methodology/approachUsing a sample of Korean listed firms (2010–2015), pooled Ordinary Least Squares (OLS) regression analysis is conducted to show whether firms that offer employees higher levels of permanent, relative to temporary contacts, demonstrate higher firm performance/efficiency.FindingsFirms that provide employees with increasing permanent (temporary) contracts experience higher (lower) performance/efficiency.Research limitations/implicationsThis research is limited due to sample selection. However, the sample represents the population of all firms that report contract type information in South Korea, a market with highly robust HC information reporting.Originality/valueBecause of data unavailability, a positive association firm-level performance/efficiency and permanent employment can only be made in a handful of countries. The study has policy implications and extends the non-financial reporting literature by addressing HC reporting limitations that exist in the mainstream accounting framework. Based on relative operational efficiency/performance, the study offers practical insights to management about the importance of staff retainment. Moreover, the authors also offer an anthropocentric perspective by inferring how low HC reporting quality can have a negative impact on society in Industry 4.0.

An analysis of the positive effect of real earnings management on financial performance

“…To the best of our knowledge, no previous study integrates managerial effectiveness into the REM model. Fourth, as demonstrated in previous studies, relative and absolute efficiency are shown to be distinguishable (Baik et al ., 2013; Demerjian et al ., 2012, 2013; Frijns et al ., 2012; Lim and Mali, 2018a, 2022; Mali and Lim, 2019, 2020, 2022). This study extends the literature by demonstrating how relative efficiency and absolute efficiency can enhance the predictive validity of accounting models.…”

“…There is evidence that firms with higher levels of relative efficiency as a result of reducing unnecessary expenses demonstrate robust current and subsequent financial firm performance, compared to peers (Alam and Sickles, 1998; Baik et al ., 2013; Fairfield and Yohn, 2001; Greene and Segal, 2004; Soliman, 2008). Furthermore, managers that achieve maximum sales, using resources that are directly under their control are monitored by market participants, thus, enjoy economic benefits (Lim and Mali, 2018a, 2020, 2022; Mali and Lim, 2019, 2020, 2022). The efficiency literature therefore provides the basis to distinguish between two groups (1) Operationally Efficient Firms (OEF) with effective management that generate maximum sales from the optimal resource-cost mix of inputs, directly under their control.…”

Does Market Performance (Tobin’s Q) Have A Negative Effect On Credit Ratings? Evidence From South Korea

“…Legislative oversight was a major contributing factor in the 1997 Financial Crisis (LaPorta, 1997 ; Emst, 1998 ). To enhance financial reporting transparency, South Korea is shown to be an early adopter of regulation policy (Choi et al, 2018; Lim & Mali, 2020 , 2022 , 2023 ; Mali & Lim, 2018 , 2019 , 2020 ). In 2023, South Korea is now the 10th largest economy based on GDP.…”

A relationship between perceived investment in temporary employee development and organizational performance: an empirical study

“…This growth in the number of temporary employees will impact the productivity and efficiency of an organization (Lim and Mali, 2022). Lim and Mali (2022) found that organizations with more temporary employees are less likely to be efficient and profitable. This may be due to the unpleasant experiences they encounter while working with permanent employees and the ignorant behaviour of the organization towards them (Clinton et al, 2020;Fisher and Connelly, 2017).…”

“…The phenomenon of temporary employment has been extensively studied in developed countries; however, there is scant research on it in a developing nation such as India, which had 1.3 million temporary employees in the organized sector in 2019 and is expected to grow by 10% by 2025 (Saigal, 2019). This growth in the number of temporary employees will impact the productivity and efficiency of an organization (Lim and Mali, 2022). Lim and Mali (2022) found that organizations with more temporary employees are less likely to be efficient and profitable.…”