Collective turnover and firm innovation: Knowledge-sharing system as a contingency

Is high employee turnover harmful to innovation? To answer this question, we draw on the knowledge-based view of innovation. Specifically, we theorize that the collective turnover of a firm engenders complex changes in knowledge insourcing needed for generating innovation, which may lead to the attenuating negative effect of turnover on innovation. This study also aims to investigate a contingency that modifies the detrimental effect of collective turnover on innovation. Specifically, we identify knowledge-sharing system (KSS) as a positive knowledge-related contingency that engenders a U-shaped curvilinear relationship between collective turnover and firm innovation. In addition, replenishing human capital by hiring new employees improves knowledge insourcing quality and diversity, thereby constituting the mechanism through which collective turnover affects firm innovation. An analysis of large-scale firm-level data collected from 2259 Korean firms over a 6-year period supports most hypotheses and confirms the positive effect of high turnover on firm innovation through replacement hiring and under favorable firm contingencies, such as a high KSS. This study provides a balanced perspective by revealing the costs and benefits of collective turnover and explains when and how turnover can facilitate firm innovation.