Human capital, social capital, and firm dissolution

This study assesses the impact that human and social capital have on the closure of firms. It proposes and tests firm-level hypotheses on the possible impacts of human and social capital on organizational dissolution, particularly their specificity (i.e., the degree to which the human capital inside a firm was idiosyncratic and difficult to transfer) and non-appropriability. In an analysis of 1,851 Dutch accounting firms during the period 1880 to 1990, the following five hypotheses are presented: (1) organizational dissolution will be negatively related with industry-specific capital developed through professional education; (2) the indicators of social capital introduced will have significantly negative effects on firm dissolution; (3) firm-specific human and social capital will have stronger effects on firm dissolution than industry-specific human capital; (4) partners' human and social capital will have a stronger effect on firm dissolution than associates' human and social capital; and (5) firms started as splits are more likely to dissolve than firms founded de novo. Results of the analysis show that all of the human capital variables except for associates' industry-specific human capital developed through professional education had significant and predicted effects on firm dissolution. In addition, only two indicators of social capital were found to significantly decrease firm dissolutions--partners from client environments and partners to client environments. Also, the partners' firm-specific human capital was found to be significantly higher than the partners' industry-specific human capital. However, social capital was not found to be significantly larger than industry-specific human capital for both partners and associates. Finally, it was concluded that firms started as splits dissolve more frequently than firms founded de novo. (SFL)

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