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« Back to Results

Startups and Entrepreneurship

Paper Session

Friday, Jan. 5, 2018 8:00 AM - 10:00 AM

Pennsylvania Convention Center, 107-A
Hosted By: American Economic Association
  • Chair: Amanda Ross, University of Alabama

Competition, Innovation, and the Number of Firms

Pedro Bento
,
Texas A&M University

Abstract

I look at manufacturing firms across countries and over time, and find that higher barriers to competition are associated with more firm entry. This is puzzling in the context of all current models of endogenous markups and free entry, where higher barriers are expected to reduce competition and firm entry, thereby increasing markups. To rationalize this finding, I extend a standard model in two ways. First, I allow for multi-product firms. Second, I model barriers as increasing the cost of entering a product market, rather than the cost of forming a firm. Higher barriers to competition reduce the number of products per firm and per market, but increase markups and the total number of firms. In addition, increasing barriers generates a negative relationship between firm-level innovation and markups, consistent with a large body of empirical evidence. While higher markups encourage investment in productivity through the usual Schumpeterian mechanism, firm-level investment drops as firms reduce their number of products. I show that allowing for adjustments along the product margin in response to entry barriers magnifies the implied impact of barriers on aggregate output and welfare. I provide new evidence supporting a novel implication of the model - that the number of products per firm decreases when barriers to competition are increased.

Inventor CEOs and Corporate Innovation

Md Emdadul Islam
,
University of New South Wales
Jason Zein
,
University of New South Wales

Abstract

One in four U.S. high-tech firms are led by CEOs with hands-on innovation experi-ence as inventors. We show that these “Inventor CEOs” stimulate higher quality firm-level innovation, especially when they have a personal history of high-impact patents. A CEO’s technology-class specific inventor experience also predicts the tech-nology classes in which a firm has its greatest innovation success. Utilizing exogenous CEO turnovers and R&D tax credit shocks to address the endogenous matching of firms with CEOs suggests these effects are causal. One channel through which Inven-tor CEOs stimulate higher quality innovation is through a superior ability to evaluate innovation-intensive investment opportunities.

Learning From Feedback: Evidence From New Ventures

Sabrina Howell
,
New York University

Abstract

How do entrepreneurs respond to credible new information about the quality of their firms? To assess the effect of feedback, I use application and judging data from 96 new venture competitions. The empirical strategy is a difference-in-differences design comparing low ranked losers to higher ranked losers, across competitions in which ventures were and were not privately informed of their ranks. Receiving negative feedback increases the probability of venture abandonment by about 26 percent. Feedback also appears to increase the efficiency of serial entrepreneurship, particularly when it comes from a judge who is an entrepreneur, despite venture capitalist judge scores being just as predictive of outcomes. I find evidence that founders with elite college degrees are overconfident. Broadly, however, the results are consistent with a view of entrepreneurship as experimentation, and have implications for theories of innovation and firm dynamics.

Management as a basis for innovation: Evidence from randomized experiments and repeated surveys in Vietnam

Yuki Higuchi
,
Nagoya City University
Tetsushi Sonobe
,
National Graduate Institute for Policy Studies

Abstract

We conducted randomized experiments to provide management training for 312 Vietnamese small manufacturers in 2010 and repeatedly collected follow-up data in 2011, 2013, and 2016. Analyzing panel data constructed from our surveys with negligible incidence of attrition (less than 2 percent of the baseline sample), we find that the treated firms were 17 percentage points more likely to continue business five years after the training, when a five-year survival rate among the control group was 52 percent. Our training not only improved management capacity of the treated entrepreneurs but also motivated them to continue learning management as well as to upgrade their product. Due to these changes triggered by the training, the treated firms, particularly a sub-group that received both classroom and on-site training programs, continued to have significantly higher business performance than the control group.
JEL Classifications
  • O3 - Innovation; Research and Development; Technological Change; Intellectual Property Rights