Abstract
Business start-ups are considered to make major contributions to economic growth. However, most lack the internal business resources necessary for survival and growth. Therefore, business and financial networks that provide business opportunities and external resources are essential for the post-entry performance of start-ups. Although preceding studies examine such networks, most do not explicitly investigate the determinants of network formation. Against this background, the present chapter argues that the formation of business and financial networks by start-up firms depends on founders’ human capital, measured in terms of founders’ educational attainment and business experience. This hypothesis is empirically tested using a large unique company database in Japan. Moreover, the focus is not only on the size of such networks, but also on their quality, which is measured based on the nature of major partners. The empirical results show that lengthy industry experience of 10 years or more on the part of the founder has a significant positive effect on the size of both business and financial networks, while having a university education positively affects both the size and quality of business and financial networks. The analysis further shows that a founder’s specific strengths and personality traits also significantly affect network formation. No distinct differences are found between the determinants of business and financial networks.
This study was conducted under the project “Designing Industrial and Financial Networks to Achieve Sustainable Economic Growth” under the Ministry of Education, Culture, Sports, Science and Technology’s program “Promoting Social Science Research Aimed at Solutions of Near-Future Problems.” The authors are grateful to Teikoku Databank Ltd. for providing data for this study. An early version of this chapter was presented at the ZEW Conference on the Dynamics of Entrepreneurship (CoDE) in Mannheim, Germany, in October 2012 and at the RENT (Research in Entrepreneurship and Small Business) XXVI. Conference in Lyon, France, in November 2012. The authors thank the participants of these conferences for valuable comments. All remaining errors are of the authors’ own responsibility.
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Notes
- 1.
- 2.
City banks are defined here as Japan’s largest private banks, with branches nationwide. Although there is no legal definition of city banks, since 2006 the following four banking groups have been regarded as city banks: the Bank of Tokyo-Mitsubishi UFJ (BTMU), Sumitomo Mitsui Banking Corporation (SMBC), Mizuho Bank (MHBK), and Resona Bank. The first three groups are also called mega banks.
- 3.
Altogether, 20 % of the start-up firms in the sample had obtained a loan from a private bank. In other words, the large majority of firms in the sample had not obtained a loan from a private bank (although some may have obtained a loan from a public bank) and about half of the firms that had obtained a loan from a private bank had done so from a city bank.
- 4.
Some firms may have been founded by more than one person and thus have co-founders. Although the role of co-founders has recently attracted growing research interest, the database employed here unfortunately does not provide any information on co-founders. It only allows one to determine whether the current president is the founder, but not who among the directors are co-founders or latecomers.
- 5.
This is a multiple-choice item, so that TDB investigators could assign multiple (or no) fortes to a founder.
- 6.
Again, TDB investigators could assign multiple (or no) traits to a founder.
- 7.
The choice of negative binomial regressions is based on the results of over-dispersion tests, which suggest that such regressions rather than Poisson regressions should be used.
- 8.
To check the robustness of these results, the sector dummies were replaced with 2-digit industry dummies and the dummy for being located in a metropolitan area (Tokyo or Osaka) with prefecture dummies. The results obtained were similar to those in Table 7.2 with regard to the effects of the other variables on network formation.
- 9.
A study along these lines is the one by Schutjens and Stam (2003), who conducted a longitudinal analysis on the evolution of networks of young firms.
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Okamuro, H., Ikeuchi, K. (2015). Determinants of Business and Financial Network Formation by Japanese Start-up Firms: Does Founders’ Human Capital Matter?. In: Watanabe, T., Uesugi, I., Ono, A. (eds) The Economics of Interfirm Networks. Advances in Japanese Business and Economics, vol 4. Springer, Tokyo. https://doi.org/10.1007/978-4-431-55390-8_7
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