Analysing the role of human capital social capital and financial capital on firm performance insights from young entrepreneurs

Abstract

This study encompasses an investigation on the role of human capital, social capital and financial capital on firm performance. This study conducted among young innovative entrepreneurs in Kerala. Young people are the backbone of every nation, representing its strength and potential. The resources, skills, and capabilities of each individual can contribute meaningfully to national growth and development when they are nurtured. But it is quite difficult to identify those key skills and resources, once identified it’s better to update and upgrade regularly. Human capital, financial capital, and social capital are the three fundamental types of organisational capital that make up a successful enterprise in the entrepreneurial process. In this context, the present study examines the relationship between human capital, social capital, and financial capital on financial and non-financial performance of startup firms led by young entrepreneurs in Kerala. Furthermore, the study analysing the mediating effect of innovation on the relationship between human capital, social capital, and financial capital and firm financial and non-financial performance. The study used both primary and secondary data analysis. Primary data is collected from innovative young entrepreneurs for measuring the human capital, social capital, financial capital, innovation and firms’ performance in subjective manner. The researcher selected 300 respondents for data collection. Secondary data are used to identify the constructs and dimensions to get a comprehension of the study topic. The study has used exploratory factor analysis, confirmatory factor analysis and structural equation modelling for data analysis. EFA has been used to finalize the scale. CFA is to assess the extent to which the data support the proposed measurement model and SEM used to analyse the multiple dependent and independent variables in the research model. The study focuses on the role of human capital, social capital, financial capital and innovation on the firm's financial and non-financial performance of young entrepreneurs in Kerala. The study revealed that human capital, social capital and financial capital have a direct positive relationship on firms' financial performance. Additionally, human capital and social capital also have a direct effect on firms' nonfinancial performance, but financial capital doesn’t have such a relationship. The main highlight of this study is that innovation mediates the relationship between human capital and social capital on firms' financial and non-financial performance, but innovation doesn’t mediate the relationship between financial capital and firms' financial and non-financial performance. The study provides suggestions to entrepreneurs, government and college/university for foster the firm performance based on the research findings. Entrepreneurs are advised to invest in human capital, social capital, and financial capital, as these play a vital role in entrepreneurial development. It is also beneficial for firms to engage in innovative activities, particularly in the areas of human and social capital. Additionally, it is recommended that universities and governments improve their support services for students, aspiring entrepreneurs, and young entrepreneurs with a focus on helping them realize, enhance and develop their human capital, social capital, and financial capital to optimize firm performance.