Does Founders' Human Capital Matter for Innovation? Evidence from Japanese Start‐ups

This study is financially supported by the Grant‐in‐Aid for Scientific Research (A) (No. 20243018) of the Japan Society for the Promotion of Science. We are grateful to a number of discussants and participants at seminars and conferences for their comments on an earlier version of this paper. In particular, we thank Y. Akashi, N. Doi, S. Nagaoka, J. O'Connor, and H. Odagiri for their helpful suggestions. We also thank two anonymous referees for their useful comments. Excellent research assistance by K. Ikeuchi is greatly appreciated. Needless to say, any remaining errors are our own.

Abstract

Using an original questionnaire survey, this paper explores whether and how founders' human capital affects the innovation outcomes of start‐ups. We found that founders with greater human capital are more likely to yield innovation outcomes. Because certain types of human capital may boost research and development () investment, which possibly results in innovation outcomes, we estimate the determinants of innovation outcomes by an instrumental variable probit model. Our findings suggest that specific human capital for innovation, such as prior innovation experience, is directly associated with innovation outcomes, whereas generic human capital, such as educational background, indirectly affects innovation outcomes through investment.

This study is financially supported by the Grant‐in‐Aid for Scientific Research (A) (No. 20243018) of the Japan Society for the Promotion of Science. We are grateful to a number of discussants and participants at seminars and conferences for their comments on an earlier version of this paper. In particular, we thank Y. Akashi, N. Doi, S. Nagaoka, J. O'Connor, and H. Odagiri for their helpful suggestions. We also thank two anonymous referees for their useful comments. Excellent research assistance by K. Ikeuchi is greatly appreciated. Needless to say, any remaining errors are our own.

This study is financially supported by the Grant‐in‐Aid for Scientific Research (A) (No. 20243018) of the Japan Society for the Promotion of Science. We are grateful to a number of discussants and participants at seminars and conferences for their comments on an earlier version of this paper. In particular, we thank Y. Akashi, N. Doi, S. Nagaoka, J. O'Connor, and H. Odagiri for their helpful suggestions. We also thank two anonymous referees for their useful comments. Excellent research assistance by K. Ikeuchi is greatly appreciated. Needless to say, any remaining errors are our own.

Notes

This study is financially supported by the Grant‐in‐Aid for Scientific Research (A) (No. 20243018) of the Japan Society for the Promotion of Science. We are grateful to a number of discussants and participants at seminars and conferences for their comments on an earlier version of this paper. In particular, we thank Y. Akashi, N. Doi, S. Nagaoka, J. O'Connor, and H. Odagiri for their helpful suggestions. We also thank two anonymous referees for their useful comments. Excellent research assistance by K. Ikeuchi is greatly appreciated. Needless to say, any remaining errors are our own.

12. Among 14,401 firms to which we sent the questionnaires, 819 firms could not be reached.

13. Because many firms start businesses with multiple founders, we asked the respondents about the number of cofounders. In practice, our sample includes firms with multiple founders. In the case of multiple founders, we asked the firm about the president.

14. The response rate of 11 percent may be excused by the fact that we targeted small start‐ups that include paper companies, other inactive firms, or those whose founders have no time to spare for response. With regard to industry distribution, the respondents were not considerably different from the target firms as a whole, although software firms are more strongly represented among the respondents than manufacturing ones. In addition, we confirmed that major characteristics of our sample firms, except for the R&D‐related variables, are not much different from those of all respondents.

15. In our empirical models, the dependent variables are measured as innovation outcomes achieved from the firm's start‐up to November 2008 when the survey was conducted, whereas the independent variables for founders' human capital were measured and fixed at start‐up. Considering the fact that our sample firms were on average around one year old when we conducted the survey, we may be able to avoid potential reverse causality, although it is not easy to determine the optimal time lag between the dependent and independent variables.

16. Among 389 (381) firms in the sample with INN (PAT) as a dependent variable, 183 (179) firms did not invest in R&D. However, 41 (10) of these firms actually achieved product or process innovations (applied for patents) after start‐up. We confirmed that the results are generally robust even after dropping the non‐R&D performing firms from the sample.

17. In Appendix Table A , we show the estimation results using a probit model, which assumes R&D investment to be exogenous.

18. As shown in the bottom of Table 5, the results of Wald test suggest the endogeneity of R&D expenditures (RDEXP).

19. We also employed an ordinary least squares and a negative binomial models, using data on the number of patent applications as the dependent variable, and confirmed similar relationships between founders' human capital and innovation outcomes.

Additional information

Funding

Japan Society for the Promotion of Science

Notes on contributors

Masatoshi Kato

Masatoshi Kato is an associate professor at School of Economics, Kwansei Gakuin University, and a visiting scholar at Center for Japanese Studies, University of California, Berkeley.

Hiroyuki Okamuro

Hiroyuki Okamuro is a professor at Graduate School of Economics, Hitotsubashi University.

Yuji Honjo

Yuji Honjo is a professor at Faculty of Commerce, Chuo University.