Employees’ Entrepreneurial Human Capital and Firm Performance

We analyze how employees’ former involvement in entrepreneurship influences firm performance, defined as productivity. Such entrepreneurial human capital (EHC) complements traditional skills and human capital measures accumulated through work experience and education. Using detailed longitudinal register data, we track the previous years of entrepreneurial experience for employees in all Swedish private sector firms. We provide evidence that higher EHC among employees is associated with higher levels of labor productivity. The results imply that a 10 percent increase of employees being former entrepreneurs increases productivity by 3,9 percent in a firm. The results are robust for various outcome measures and the definitions of entrepreneurship. We propose several channels of our findings via the heterogeneity in the employees and the entrepreneurial experience and argue that the results are important at both the firm and policy levels.