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Deviating from the benchmarks: Human capital inputs and the survival of new startups

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Listed:
  • Vera Rocha

    () (Copenhagen Business School – INO)

  • Mirjam van Praag

    () (Copenhagen Business School – INO)

  • Anabela Carneiro

    () (Universidade do Porto – cef.up)

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.

Suggested Citation

  • Vera Rocha & Mirjam van Praag & Anabela Carneiro, 2015. "Deviating from the benchmarks: Human capital inputs and the survival of new startups," CEF.UP Working Papers 1502, Universidade do Porto, Faculdade de Economia do Porto.
  • Handle: RePEc:por:cetedp:1502
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    References listed on IDEAS

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    Keywords

    Keywords: human resources; human capital; startup conditions; new ventures; firm survival; entrepreneurs; intra-industry dynamics;

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