Empirical studies on the effectiveness of firm-specific human capital as the constraint of employee mobility remain scant. In this study, we investigate government customer-specific knowledge, an underexplored type of firm-specific human capital, which stems from the interaction of employees with the focal firm’s government customers, and its isolating effect on retaining employees. Specifically, we hypothesize that firms with a higher level of government customer-specific knowledge experience lower employee turnover. Moreover, the negative relationship is stronger for R&D intensive firms and weaker for diversified firms. Using data from US firms listed in the S&P 1500 index from 2008 to 2018, we find board support for our hypotheses. Our study advances human resource management research by discovering a new type of firm-specific human capital developed through interactions with the often-overlooked external stakeholder: government customers.
