Causal analysis in human capital, R&D assets and financial performance: Evidence from Taiwanese firms operating in China

In response to the open-door economic policy of China, companies in Taiwan have gradually relocated their production lines to China in order to decrease production costs and meet major market needs. Moreover, previous studies have examined whether businesses can continually earn excess profits by researching and developing new technology or products using their strong human resources. Therefore, the present research aims to explore how businesses in Taiwan can continue to hold global competitive advantages and successfully enter new markets. This study proposes a two-stage least squares (2SLS) method to investigate the causal relationships between human resource quality of domestic firms, research and development (R&D) output of their parent companies, and managerial performance of their subsidiaries in China. The results of this study can serve as a reference for the management of domestic businesses that have invested in China or plan to do so in the future, thereby enhancing their managerial advantages.