The effect of human capital on innovation: The mediation role of knowledge creation and knowledge sharing in small companies

Small companies face many obstacles and limitations that require more attention, especially the low quality of human resources, so that they continue to make a strategic contribution in creating innovation and becoming a driving force for a country’s economy. The purpose of this study is to examine the effect of human capital, knowledge creation and knowledge sharing on innovation. Data were collected using an online questionnaire. The research sample consisted of 396 small companies, and 187 were returned, filled in completely by managers of small companies in the Province of Bali, Indonesia. Data were analyzed using SEM with the PLS approach with WarpPLS 7.0. The results demonstrate that human capital has a significant positive influence on knowledge creation (β = 0.784; p < 0.001), human capital was found to have an effect on innovation (β = 0.212; p < 0.001), human capital has an effect on knowledge sharing (β = 0.853; p < 0.001), knowledge creation influences innovation (β = 0.428; p < 0.001), knowledge sharing has an effect on innovation (β = 0.323; p < 0.001), knowledge creation successfully mediates the influence of human capital on innovation, and knowledge sharing mediation is successful in the influence of human capital on innovation. This study improves the understanding of human capital by reducing the scarcity of empirical research and by uncovering the mechanisms through knowledge creation and knowledge sharing that influence innovation.