Human Capital, Knowledge Based Firms, and the Entrepreneurial Life-Cycle

Start date: April 1st, 2009. End Date: March 31st, 2012
PIs: Rui Baptista (IST/UTL), Steven Keppler (CMU)

Dual Degree Ph.D. Students: Ana Isabel Venâncio (Technological Change and Entrepreneurship), Carla Maria do Rosário Costa (Technological Change and Entrepreneurship), Cristina Maria da Silva Carias (Technological Change and Entrepreneurship), Pedro Miguel da Silva Antunes Prego (Technological Change and Entrepreneurship), Cristobal Cheyre (Technological Change and Entrepreneurship), Mohammad Jahanbakht (Technological Change and Entrepreneurship)

Teams: Instituto Superior Técnico (IST/UTL), Universidade Católica Portuguesa (UCP), ISCTE, Carnegie Mellon
Companies: YDreams, Alfama
Keywords: Entrepreneurship, Human Capital, Innovation, Knowledge-based Firms, Entrepreneurship Life-Cycle, Job Creation.

One of the major socio‐economic trends since the 1990s is the rise of entrepreneurship as a driver of innovation, competitiveness and economic development. Government policies fostering entrepreneurial activity have been adopted by many countries. However, empirical research indicates that it is only a relatively small number of fast‐growing new firms that account for the lion share of job creation, while most new firms are born small and remain small during their (usually short) life spans. Because most fast growing firms fit the category of knowledge‐based firms, a central aspect in understanding their creation and growth is the role played by human capital. Human capital entails the stock of knowledge and skills that reside within individuals and that can be developed over time. The research proposed here addresses novel and critical questions linking human capital, the creation and development of knowledge‐based firms, and the entrepreneurial life‐cycle. The specific research goals are twofold: first, we aim to investigate the role of general and specific human capital on successive stages of the development of knowledge‐based firms: start‐up, growth, diversification and exit. Second, we look at the role played by human capital on individual decisions taken by entrepreneurs over their lifecycle: the decision to become an entrepreneur; the decision to exit entrepreneurship, and the post‐exit life of entrepreneurs, i.e. how do they fare in the labor market when compared with other individuals who were never entrepreneurs?

One of the biggest challenges of this research is addressing the interaction between firm/market factors and individual characteristics, which can only be studied when data are available linking individuals and firms over time. Such data sets are rare and hard to access. Portugal has one of the most complete matched employer‐employee databases: the ‘Quadros de Pessoal’ (QP) Micro Data set is gathered from mandatory information submitted yearly by Portuguese firms to the Ministry of Social Security and Labor since 1982. This longitudinal dataset can be used to track the evolution of markets and individual firm performance, as well as individuals’ professional and entrepreneurial experiences over time, allowing for the examination of their decisions and behavioral patterns in the labor market.