Chapter 9: Summary, Conclusions and Policy Recommendations
9 Human and ﬁnancial capital Introduction The objective of this chapter is to answer the question: ‘To what extent is the performance of a small business venture, once started, aﬀected by capital constraints at the time of inception and by the business founder’s investment in human capital?’. In particular, can we measure the distinct contribution of each of the human and ﬁnancial capital factors, taking account of the possibility that human capital might also have an indirect eﬀect on performance by making ﬁnancial capital easier to access and so diluting any capital constraint (see Parker and van Praag, 2004)? Using a sample of data from a rich survey of entrepreneurs conducted in the Netherlands in 1995, we tested empirically three propositions that follow from a theoretical model: 1. 2. 3. Capital constraints have a decreasing eﬀect on average on entrepreneurs’ performance. Greater human capital has an increasing eﬀect on average on entrepreneurs’ performance. Greater human capital decreases capital constraints. The empirical contribution of this chapter is threefold. First, we model entrepreneurs’ capital constraints as an endogenous variable (measured on a continuous scale), and assess the eﬀect of these constraints on entrepreneurs’ performance. We argue that treating capital constraints as endogenous yields useful insights into their composition, while enabling the eﬀects of these constraints on entrepreneurs’ performance to be estimated consistently. After all, it is to be expected that the extent of capital constraints is endogenous because both actual and desired amounts of start-up...
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