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Individual Entrepreneurship Capacity and Performance of SMEs

  • Leitão, João
  • Franco, Mário

This paper analyses the importance of human capital and organizational capital on the determination of SME’s performance, by proposing and testing a conceptual model about Individual Entrepreneurship Capacity, and its impact both on non-economic and economic performance. This constitutes an innovative approach in the sense that uses information collected at the individual level, that is, the entrepreneur. Moreover, it constitutes a first attempt for facing the caveat in the literature on the relationship among types of capital and entrepreneurial performance. A model where the individual entrepreneurship capital is defined as a function of two types of capital: Human and Organizational; is proposed and empirically tested. For the Human Capital we consider three dimensions: (a) Individual Characteristics; (b) Managerial Push; and (c) Managerial Pull. As concerns the Organizational Capital, four dimensions are considered: (i) Individual Entrepreneurial Behavior; (ii) Collective Entrepreneurial Behavior; (iii) Managerial Practices; and (iv) Organizational Culture (in terms of the Superstructure and the Socio-Structure). The use of the stepwise method provides the selection of significant variables that impact on SME’s performance. When only non-economic indicators are considered for measuring the performance, in what respects the human capital we find out that the only significant variable is: enthusiasm at work. In what concerns the organizational capital the significant variables are: efficient organizational structure; participative management; incentives for interdisciplinary discussion and dialogue; and frequent meetings of working groups. For its turn, when economic indicators are considered for measuring the performance, we find out that the significant human capital determinants are: entrepreneur’s intuition; and propensity for innovating activities. In terms of organizational capital determinants we reveal that the significant variables are: efficient organizational structure; and use of external indicators for improving entrepreneurial performance. The main policy implication of the paper is the possibility of creating, at an individual level, new incentives and motivational tools based on the identification of the most important variables of human capital and organizational capital, for fostering SME’s performance.

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File URL: http://mpra.ub.uni-muenchen.de/8179/1/MPRA_paper_8179.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8179.

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Date of creation: 09 Apr 2008
Date of revision: 09 Apr 2008
Handle: RePEc:pra:mprapa:8179
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  1. Holmes, Thomas J & Schmitz, James A, Jr, 1990. "A Theory of Entrepreneurship and Its Application to the Study of Business Transfers," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 265-94, April.
  2. Cooper, Arnold C. & Gimeno-Gascon, F. Javier & Woo, Carolyn Y., 1994. "Initial human and financial capital as predictors of new venture performance," Journal of Business Venturing, Elsevier, vol. 9(5), pages 371-395, September.
  3. Bates, Timothy, 1990. "Entrepreneur Human Capital Inputs and Small Business Longevity," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 551-59, November.
  4. van Praag, C M & Cramer, J S, 2001. "The Roots of Entrepreneurship and Labour Demand: Individual Ability and Low Risk Aversion," Economica, London School of Economics and Political Science, vol. 68(269), pages 45-62, February.
  5. David Blanchflower & B Meyer, 1991. "A Longitudinal Analysis of Young Entrepreneurs in Australia and the United States," CEP Discussion Papers dp0055, Centre for Economic Performance, LSE.
  6. Blanchflower, David G. & Shadforth, Chris, 2007. "Entrepreneurship in the UK," Foundations and Trends(R) in Entrepreneurship, now publishers, vol. 3(4), pages 257-364, July.
  7. Niels Bosma & Mirjam van Praag & Roy Thurik & Gerrit de Wit, 2004. "The Value of Human and Social Capital Investments for the Business Performance of Startups," Small Business Economics, Springer, vol. 23(3), pages 227-236, October.
  8. Scott Shane & Toby Stuart, 2002. "Organizational Endowments and the Performance of University Start-ups," Management Science, INFORMS, vol. 48(1), pages 154-170, January.
  9. Blanchflower, D.G. & Oswald, A., 1991. "What Makes an Entrepreneur?," Economics Series Working Papers 99125, University of Oxford, Department of Economics.
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  11. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-48, August.
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  14. Carmeli, Abraham, 2004. "Strategic human capital and the performance of public sector organizations," Scandinavian Journal of Management, Elsevier, vol. 20(4), pages 375-392, December.
  15. Batjargal, Bat, 2007. "Internet entrepreneurship: Social capital, human capital, and performance of Internet ventures in China," Research Policy, Elsevier, vol. 36(5), pages 605-618, June.
  16. Mark A. Youndt & ohan Subramaniam & Scott A. Snell, 2004. "Intellectual Capital Profiles: An Examination of Investments and Returns," Journal of Management Studies, Wiley Blackwell, vol. 41(2), pages 335-361, 03.
  17. Bruderl, Josef & Preisendorfer, Peter, 1998. " Network Support and the Success of Newly Founded Businesses," Small Business Economics, Springer, vol. 10(3), pages 213-25, May.
  18. David Audretsch & Erik Monsen, 2007. "Entrepreneurship Capital: A Regional, Organizational, Team, and Individual Phenomenon," Papers on Entrepreneurship, Growth and Public Policy 2007-06, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
  19. Simon C Parker, . "The Economics of Entrepreneurship: What We Know and What We Don't," Papers on Entrepreneurship, Growth and Public Policy 2005-18, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
  20. Stuart, Robert W. & Abetti, Pier A., 1990. "Impact of entrepreneurial and management experience on early performance," Journal of Business Venturing, Elsevier, vol. 5(3), pages 151-162, May.
  21. Samaniego, Roberto M., 2006. "Organizational capital, technology adoption and the productivity slowdown," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1555-1569, October.
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