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Small Business Economics

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01.09.2012

Founders’ human capital and the performance of UK new technology based firms

verfasst von: Panagiotis Ganotakis

Erschienen in: Small Business Economics | Ausgabe 2/2012

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Abstract

This paper investigates the role of entrepreneurs’ general and specific human capital on the performance of UK new technology based firms using a resource based approach to the entrepreneurship theory. The effect of entrepreneurial human capital on the performance of NTBFs is investigated using data derived from a survey of 412 firms operating in both high-tech manufacturing and the services sectors. According to the resource based theory it is found that specific human capital is more important for the performance of NTBFs in relation to general. More specifically individual entrepreneurs or entrepreneurial teams with high levels of formal business education, commercial, managerial or same sector experience are found to have created better performing NTBFs. Finally it is found that the performance of a NTBF can improve through the combination of heterogeneous but complementary skills, including, for example, technical education and commercial experience or managerial technical and managerial commercial experience.

Vorheriger Artikel Part-time entrepreneurship and financial constraints: evidence from the Panel Study of Entrepreneurial Dynamics

Nächster Artikel How does working capital management affect the profitability of Spanish SMEs?

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NTBFs can be created by both lone entrepreneurs but also by entrepreneurial founding teams (hereafter EFTs). Entrepreneurs and EFTs are defined in this paper as those individuals who own part of a firm’s equity and are responsible for making strategic decisions at the time of the founding (Ucbasaran et al. 2003).

For example, education and experience and the level of investment that has been made on each one of these.

Especially if it is measured in years of general experience which can be highly correlated with age.

The latest study examining the performance of firms located in science parks in the UK was performed by Siegel et al. (2003) and is a review of the results of previous studies. In general, firms that were located in science parks were not found to perform better in a variety of performance measures.

The latter was also compared with the Department of Trade and Industry (DTI) innovation report: ‘Competing in the global economy: The innovation challenge’ (December 2003).

It was found that 76% of the sampled firms were involved in R&D activities in 2005 and that 34.6% of their expenditure was allocated to R&D activities. Moreover, 80.5% reported that they had introduced a new or significantly improved product in the market (67.1% of which were radically new to the market products) in the previous 3 years. Overall, 90% of them were either involved in R&D activities or had introduced an innovative product onto the market in the 3 years prior to 2005. The remaining companies stated that they will commence extensive R&D activities in the near future. It is believed that these results verify that sampled firms can overall be regarded as R&D-intensive companies.

The author would like to thank the ONS for providing tables for each sector according to the size and age of the company.

Given that 66% of UK companies have fewer than five employees and 81% have fewer than nine (ONS, 03/92), the sample was calibrated with higher weight to the larger companies in order to have a statistically representative sample of that class. The ‘other software and supply’ sector was also calibrated in order to reduce the category with 0–4 employees as it accounted for 76% of the companies in that sector. This step was performed as a large number of one-man band consultants operate in that sector, and it was not possible to identify them ex ante.

Results are available from the author upon request.

In order to test the robustness of the variable specifications, apart from the proportion of entrepreneurs in an EFT with technical, commercial, managerial and sector experience, dummy variables on whether each of the above types of specific experience existed in an EFT were also used. The results remained unchanged and are available upon request.

In order to take into account that entrepreneurs can acquire general experience and related skills after foundation of the firm, general experience was also defined as the average number of years of general experience in an EFT up to the point of the survey rather than up to a firm’s incorporation date. Again, the results remained unchanged and are available upon request.

It is acknowledged that changes in the initial EFT can occur as some team members might exit and others might enter the team (Ucbasaran et al. 2003). This possibility was taken into consideration as the survey asked for both the initial number of individuals that owned a stake of a firm’s equity and were responsible for making strategic decisions at its formation and the number of those individuals at the time of the survey as well as the characteristics of all members of the EFT. It was found that in 17.9% of the firms at least one member exited the EFT. In only 0.5% of the firms (2 firms) had one member entered an EFT. A dummy variable capturing the exit of team members was included as an extra control variable, and although it had the expected negative effect, it was not significant while all the other results remained unchanged. It was therefore not included in the models presented.

This was actually the case in 13% of the EFTs in relation to 5% of lone entrepreneurs where technical and business education coexisted, in 16% of the EFTs in relation to 4% of lone entrepreneurs where technical education and commercial experience coexisted and, finally, managerial technical and managerial commercial experience existed only in 8% of the EFTs.

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Titel: Founders’ human capital and the performance of UK new technology based firms
verfasst von: Panagiotis Ganotakis
Publikationsdatum: 01.09.2012
Verlag: Springer US
Erschienen in: Small Business Economics / Ausgabe 2/2012
Print ISSN: 0921-898X
Elektronische ISSN: 1573-0913
DOI: https://doi.org/10.1007/s11187-010-9309-0

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