Working Paper: CEPR ID: DP8205
Authors: Luigi Guiso; Aldo Rustichini
Abstract: We collect information on prenatal testosterone in a large sample of entrepreneurs by measuring the length of their 2th to 4th fingers in face to face interviews. Entrepreneurs with higher exposure to prenatal testosterone (lower second to fourth digit ratio) manage larger firms, are matched with larger firms when acquire control and experience faster average growth over the years they manage the firm. We also find that pre-natal testosterone is correlated with elicited measures of entrepreneurial skills such as ability to stand work, and the latter are correlated with firm size. This evidence suggests entrepreneurial skills have a biological component and is consistent with models of the size distribution of firms based on entrepreneurial ability. However, firms run by high-testosterone entrepreneurs have lower profitability as measured by return on assets. We offer evidence that this is because the same biological factor that enhances entrepreneurial skills also induces empire building preferences, which leads high-testosterone entrepreneurs to target a firm size that exceeds the profit maximizing value.
Keywords: digit ratio; entrepreneurial success; firm size distribution
JEL Codes: D22; L21; L25; L26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lower digit ratio (J79) | larger firm size (L25) |
| lower digit ratio (J79) | faster growth rates (O49) |
| higher exposure to prenatal testosterone (J79) | larger firm sizes (L25) |
| higher exposure to prenatal testosterone (J79) | lower profitability (L21) |
| larger firm size (L25) | lower profitability (L21) |
| lower digit ratio (J79) | more employees (M51) |
| lower digit ratio (J79) | higher sales (M31) |
| high-testosterone entrepreneurs (L26) | higher profit levels (L21) |