The survival of new companies in São Paulo state: a study about human capital, social capital and management practices

Abstract

The literature indicates that small young firms face a greater risk of closing than bigger, established enterprises in their respective sectors. The objective of our research is to examine empirically the impact of three factors that may contribute to the survival of rising companies: the human capital of the entrepreneurs, their social capital and the use of management practices after the startup of the new firm. Based on a sample of 1,961 companies opened and registered at State of São Paulo Registry of Commerce (Jucesp) from 1999 to 2003, we conducted a quantitative study to examine the probability of survival of these enterprises. Certain variables were shown to be statistically significant in terms of explaining the likelihood of survival of new companies, such as the entrepreneurs' degree of education and their previous preparation before opening the business (related to their human capital), the existence of family members in similar businesses (related to their social capital) and, mainly, the adoption of management practices such as attempting to foresee facts and the search for relevant information. These results highlight the need to consider elements of different theoretical approaches in order to explain the likelihood of new enterprises surviving.