Abstract: How does the economy adapt to new technologies? While existing literature focuses on the role of established firms, we highlight the importance of entrepreneurs and young firms. The context is a natural experiment: the staggered roll-out of broadband internet in Norway. We find that the new technology had small effects on the survival, employment and asset growth of established firms, but led to a quarter increase in startup rates. Startup quality did not decline. Combined with survey evidence, our findings support ideas from Schumpeter (1934) and Arrow (1962) that startups play an important role in adapting the economy to new technologies.
Viola Salvestrini, Queen Mary University of London
Abstract: Using registry data from Denmark, this paper shows that higher exposure to entrepreneurship during adolescence affects the representation of women and the allocation of talent in this profession. We track the educational and professional choices of one million individuals from adolescence to adulthood and exploit within-school cross-cohort variation in exposure to entrepreneurship, as measured by the share of an adolescent's peers whose parents are entrepreneurs during the last years of compulsory schooling. We find that early exposure to entrepreneurs encourages girls' entry and tenure into this profession, while it does not affect the professional choices of boys. The effect is entirely driven byexposure to the entrepreneur parents of female peers and works via a decrease in girls' likelihood to discontinue education at the end of compulsory schooling and to hold low-paying jobs as adults. Moreover, the increase in female entrepreneurship is associated with the creation of businesses that are larger and survive longer than the average firm. Taken together, these findings suggest that gender-specic entry barriers, which appear to be both cultural and informational in nature, may prevent some innately talented female entrepreneurs from pursuing their comparative advantage.
Discussant: Ye Zhang, Stockholm School of Economics
Abstract: The Qualified Small Business Stock (QSBS) exemption allows certain entrepreneurs, their employees, and their investors to sell shares of their companies without paying any—or only greatly reduced—capital gains taxes. Using a diff-in-diff identification strategy, we show that the QSBS exemption increase in 2010 led to a 12% increase in firm births in industries eligible for the exemption relative to non-eligible industries. We show that the exemption's effect on entrepreneurship is concentrated in industries that have a high rate of startup exits, in high-tech industries, and in those with a high fraction of STEM employment. The exemption also led to an increase in startup employment—but only among employees with a bachelor's or higher degree. These findings suggest that the QSBS exemption spurred entrepreneurship by increasing prospective entrepreneurs' after-tax benefit of founding a successful startup and by making it easier for them to attract highly-educated talent. In addition, we show that the QSBS exemption increased startups' ability to raise their first round of venture capital. Taken together, our findings suggest that the QSBS exemption increases both the willingness of prospective entrepreneurs to become founders and their ability to raise the resources they need to be successful. Finally, we also show that the QSBS exemption led to higher patenting in treated startups, thus suggesting that it was particularly helpful to innovative startups.
Discussant: Matthew Denes, Carnegie Mellon University
Abstract: We examine the sale of General Partner (GP) cash flow claims by Private Equity (PE) firms, termed GP stakes, and how these sales relate to agency frictions with fund investors. PE firms with better fundraising and performance records tend to sell GP stakes, mostly to other PE firms. Seller PE firms’ Assets Under Management, income, and scope of fund strategies subsequently increase, while fund performance does not deteriorate. Sellers invest more in their funds, increase employment, and make investor-friendly fund distributions. Our results suggest the reduced “skin-in-the-game" from stake sales does not exacerbate agency frictions between sellers and fund investors.
Discussant: Vladimir Mukharlyamov, Georgetown University
