Founders’ human capital and external knowledge sourcing: Exploring the absorptive capacity of start-up firms

ABSTRACT

This study highlights the importance of founders’ human capital on firms’ absorptive capacity for explaining the external knowledge sourcing (licensing-in and joint R&D) of start-up firms, using panel data from original questionnaire surveys conducted in Japan. The results of a probit model with an endogenous regressor show that firms managed by founders with a high level of specific human capital, measured as prior innovation experience and industry-specific work experience, tend to engage in external knowledge sourcing because of their superior absorptive capacity. The findings indicate that this type of human capital also promotes research and development (R&D) investment. Contrariwise, this study finds that firms managed by founders with a high level of general human capital, measured as educational attainment, tend to invest more in R&D, which enhances their absorptive capacity and thereby promotes external knowledge sourcing. Finally, the implications of these findings are discussed from the perspective of public policy.

KEYWORDS:

• Start-up firm
• founders’ human capital
• absorptive capacity
• external knowledge sourcing
• research and development (R&D)

Acknowledgements

I am grateful to the managing editor and two anonymous referees for their useful comments and suggestions. I thank Yuji Honjo, Keisuke Kawata, Koyo Miyoshi, Sadao Nagaoka, Junichi Nishimura, Hiroyuki Odagiri, Atsushi Ohyama, Hiroyuki Okamuro, Hideo Owan, and the participants of a seminar of Nagoya University, the Kansai Labor Workshop, the Innovation Economics Workshop, and the 2016 JEA Autumn Meeting for their comments and suggestions on an earlier version of this paper.

Disclosure statement

No potential conflict of interest was reported by the author.

ORCID

Masatoshi Kato http://orcid.org/0000-0001-6087-5253

Notes

1 According to the 2014 Global Entrepreneurship Monitor (GEM), Japan ranks the lowest among Organisation for Economic Co-operation and Development (OECD) countries for total entrepreneurship activity. Using individual data from GEM, Honjo (2015) revealed that while Japan has low levels of entrepreneurial activities and attitudes, entrepreneurial attitudes and personal attributes are associated with business start-ups and new business investment in Japan. He found that those individuals who have perceived that they possess the knowledge, skill, and experience required to start a new business are more likely to engage in a business start-up in Japan, compared with other countries. Further, it was shown that those individuals who are acquainted with other entrepreneurs are more likely to invest in a new business in Japan rather than in other countries.

2 Although the Establishment and Enterprise Census compiled by the government covers all establishments and firms in Japan, it does not include information on innovation activities and founder-specific characteristics.

3 However, it was not possible to check the survivorship bias in the repeated surveys because of the lack of data on the status of sample firms after start-up. As an alternative solution, the empirical model is estimated based only on the first survey to check whether the results change. As discussed in the robustness check subsection, the interpretation of the overall results does not change, although the significance level decreases because of the smaller sample size.

4 R&D expenditure per employee and the ratio of R&D personnel to total employees as alternative measures representing R&D capacity were also used to check the robustness of the results. The results changed little.

5 In addition to educational attainment, a dummy variable for founders’ work experience as a regular employee in any field—not only a related field—was also used to measure general human capital (Bosma et al. 2004; Rauch and Rijsdijk 2013; Unger et al. 2011). However, this variable does not significantly affect either EXT or RD_INV. Therefore, the results with this variable are not reported.

6 These two variables are constructed following Okamuro (2009).

7 Of the firm-year observations, 59% have a positive value. Conditional on a positive value, the mean value is 5.256 (equivalent to about 13.5 million yen).

Additional information

Funding

This study was supported by a Grant-in-Aid for Scientific Research (A) [grant number 20243018] and (C) [grant number 18K01639] from the Japan Society for the Promotion of Science.