Attracting and employing workers with the necessary human capital, or human capital sourcing, is crucial for the success of any knowledge-intensive firm. Prior studies indicate that firms with a higher reputation gain a competitive advantage by leveraging worker human capital. However, firms with relatively low reputations may face inherent challenges when competing with higher-reputation counterparts for human capital sourcing. What are the specific challenges confronted by these firms, and what unique strategies can they implement to address these challenges? We propose a theoretical framework that examines labor market frictions as barriers to worker entry in lower-reputation firms and the coping strategies employed by these firms, within the professional service industries. Building on this framework, we then develop hypotheses concerning the unique preferences of lower-reputation firms for two strategies for human capital sourcing: (1) supplementary quality and opportunity signals and (2) alternative sources of labor untapped or underutilized by higher-reputation firms. Through an empirical analysis of multi-sourced data from U.S. corporate law firms spanning the years 2000 to 2020, we find evidence that mostly supports the specific behavioral patterns exhibited by lower-reputation firms. We then discuss the implications of these findings for the relevant literature.
