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Individual Entrepreneurship Capacity and Performance of SMEs

Leitão, João and Franco, Mário (2008): Individual Entrepreneurship Capacity and Performance of SMEs.

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Abstract

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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