Human Capital and its Impact on Small Firm Success

Abstract

Entrepreneurship literature has identified number of factors that determine the growth or success of the small firms. Among those factors, Humane Capital has been identified as the most prominent factor. Especially in small firms owner manager plays the strategic role within the enterprise (Pennings, Lee, & Van Witteloostuijn, 1998). Gimeno, & et al., (1997). The general assumption is that human capital of the founder improves small firm’s chances to survive. The one key factor to achieve higher level of success is investing in human capital. Owner manager’s capability of running smoothly the business determines the level of success. Human capital makes the founder more efficient in managing and operating the business. Human capital acts as a resource and it is created by changes in persons that bring about skills and capabilities that make them able to act in new ways. Whether the Human Capital possessed by the owner manager is a strong determinant of the small business success is the main research question addressed in this research. This study focused on several objectives such as to categorize human capital attributes meaningfully based on the interrelationships among the human capital attributes; to reveal the effects of human capital on the business success and determine the strong human capital attribute which shows a strong impact on the business success; and finally suggest some recommendations based on the findings of the research. The sample includes 100 small scale manufacturing enterprises located in Southern Province of Sri Lanka. The Factor Analysis and Multiple Regression Analysis have been used for data analysis. The research founded that 11.9 percent of variation of the business success makes by human capital. Among the four factors of human capital variables resulted in factor analysis, Training and Education has a significant positive impact on business success. The other three human capital variables have no significant association with business success.