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Instrumental Value Theory and the Human Capital of Entrepreneurs

Levie, J.D. and Gimmon, E. (2009) Instrumental Value Theory and the Human Capital of Entrepreneurs. Journal of Economic Issues, 43 (3). pp. 715-732. ISSN 0021-3624

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Abstract

Given the contribution of Schumpeterian entrepreneurship to technological progress and well-being, the accuracy of investment decisions by venture capitalists is a societal issue. Venture capitalists find the human capital of entrepreneurs difficult to assess. This paper employs instrumental value theory to assess the value of different human capital factors to the performance of new ventures. A meta-analysis of 29 previous empirical studies that examined the effect of founder's human capital on new venture performance suggested that instrumental value theory holds promise as a guide for research on entrepreneurs' human capital and new venture performance. It could also help venture capitalists to make better investment decisions, benefiting society in general