The objective of this study is to evaluate the importance of human capital and innovation on the performance of small firms in the construction sector in developing countries. Primary data was collected from 255 small contractors in the construction sector in the state of Kelantan, Malaysia. Multiple regression analysis methods were used to analyze the data. The results show that all the human capital (experience, education and training) have a significant relationship with the performance of small firms in the construction sector. Among the three elements, the study found that “experience” exhibits the most significant positive relationship. This finding is consistent with the Theory of Human Capital. The findings also indicate that innovation has a direct influence on the performance of small firms in the construction sector. This supports the theory of economic development which explains the importance of innovation in creating competitive advantage and a firm’s performance.
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