Deviating From the Benchmarks: Human Capital Inputs and the Survival of New Startups

Vera Rocha, Mirjam Van Praag, Anabela Carneiro

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    Abstract

    This paper studies three related questions: To what extent otherwise similar startups employ different quantities and qualities of human capital at the moment of entry? How persistent are initial human capital choices over time? And how does deviating from human capital benchmarks influence firm survival? The analysis is based on a matched employer-employee dataset and covers about 17,500 startups in manufacturing and services. We adopt a new procedure to estimate individual benchmarks for the quantity and quality of initial human resources, acknowledging correlations between hiring decisions, founders human capital, and the ownership structure of startups (solo entrepreneurs versus entrepreneurial teams). We then study the survival implications of exogenous deviations from these benchmarks, based on spline models for survival data. Our results indicate that (especially negative) deviations from the benchmark can be substantial, are persistent over time, and hinder the survival of firms. The implications may, however, vary according to the sector and the ownership structure at entry. Given the stickiness of initial choices, wrong human capital decisions at entry turn out to be a close to irreversible matter with significant survival penalties.
    Original languageEnglish
    Publication date2015
    Number of pages30
    Publication statusPublished - 2015
    EventThe DRUID Society Conference 2015: The Relevance of Innovation - LUISS Business School, Rome, Italy
    Duration: 15 Jun 201517 Jun 2015
    Conference number: 37
    http://druid8.sit.aau.dk/druid/registrant/index/login/cid/16

    Conference

    ConferenceThe DRUID Society Conference 2015
    Number37
    LocationLUISS Business School
    CountryItaly
    CityRome
    Period15/06/201517/06/2015
    SponsorLUISS Guido Carli - Libera Università Internazionale degli Studi Sociali Guido Carli
    Internet address

    Cite this

    Rocha, V., Van Praag, M., & Carneiro, A. (2015). Deviating From the Benchmarks: Human Capital Inputs and the Survival of New Startups. Paper presented at The DRUID Society Conference 2015, Rome, Italy.