Staffing Leverage Determinants and Effects on Firm Performance

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Abstract

In this study we examine the relationships among operating strategies reflected in the scale and scope of operations, human resource strategy reflected in the ratio of staff-to-partners, and firm financial and quality performance. Using a sample of large U.S. accounting firms from the Accounting Today, Top 100 rankings, we find that staffing leverage is positively associated with the scale of operations as measured by Big4, but not the number of offices. Contrary to our prediction, it is not associated with the diversity of services provided. We find a positive association between financial performance and the staff-to-partner ratio that declines as leverage increases. This is consistent with the bulk of firms optimally occupying the upward sloping arm of the hypothesized inverted U-shape. Finally, we find a positive association between staffing leverage and the percentage of a firm’s clients that restate their financial statements consistent with our prediction that staffing leverage is inversely related to quality.

Authors

• Barbara Murray Grein, Drexel University

• Anna M Cianci, Wake Forest University

• Xiaojie Sun, Drexel University