Reference

Pandey, Lien, Knudsen & Timmermans (in review) Human Capital Accumulation in New Ventures: The Role of Founders vs. Early Employees

What

How does the quality of a firm's first hire affect the quality of consecutive hires?

Abstract

Attracting human capital of competitive quality is a challenge for most new ventures. Existing research emphasizes the role of founders in attracting new employees. In this paper, we extend the focus to also include how the quality of a firm’s early hires, affect the quality of subsequent hires. Using rich Norwegian micro-data, we compare and contrast the influence of the human capital of the founder and the first employee, on the human capital of the second employee. We find that, on average, the influence of the first employee is comparable to that of the founder. The influence is stronger in the low end of the human capital distribution, and when the first and second employees share occupational backgrounds. We also find a declining marginal effect of the first employee’s human capital as founder human capital increases, and vice versa. This implies that human capital of the founder and the first employee are not mutually reinforcing.

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Available on request