People Investment and Value Creation in Emerging Markets: Evidence Across Industries and Firm Sizes

Abstract

This study aims to analyze the relationship between employee costs and corporate financial performance while examining the moderating roles of industry type and firm size in emerging markets. The research adopts a quantitative approach using panel data from 62 companies consistently listed in the IDX Kompas100 index during the 2020–2024 period. Panel regression analysis is applied using the Fixed Effects Model and complemented by the Generalized Method of Moments (GMM) to address potential endogeneity and reverse causality. The analytical framework integrates Efficiency Wage Theory and Porter’s Value Chain model to explain how labor investments influence firm outcomes. The findings indicate that employee costs significantly increase revenue (β = 0.273; p < 0.01) and operating profit (β = 0.240; p < 0.05), suggesting that labor investment contributes positively to firms’ operational performance. However, the effect on return on assets (ROA) is negative and statistically insignificant, suggesting that labor investment does not immediately improve asset efficiency. Moderation results show stronger effects in labor-intensive industries and large firms, while GMM confirms bidirectional causality between performance and labor investment. The novelty of this study lies in providing longitudinal firm-level evidence from consistently listed Kompas100 companies, highlighting the strategic role of employee costs in shaping financial performance in an emerging market.