Working Paper: NBER ID: w19845
Authors: Manuel Adelino; Song Ma; David T. Robinson
Abstract: This paper asks whether startups react more to changing investment opportunities than more mature firms do. We use the fact that a region's pre-existing industrial structure creates exogenous variation in the severity of its exposure to nation-wide manufacturing shocks to develop an instrument for changing investment opportunities, and examine employment creation in the non-tradable sector as a response to those opportunities. Startups are much more responsive to changing local economic conditions than older firms. Moreover, their responsiveness doubles in areas with better access to small business finance, suggesting that financing constraints are an important brake on job creation in the startup sector. Although we focus mostly on the non-tradable sector for empirical identification, our results extend to other sectors of the economy, indicating that the mechanisms we uncover are economically pervasive. This suggests that factors like organizational flexibility and innovativeness may be important drivers of job creation among startups.
Keywords: Firm Age; Investment Opportunities; Job Creation
JEL Codes: G21; G3; J2; J21; J23; J63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| young firms (0-1 year old) (L26) | job creation in the nontradable sector (J68) |
| older firms (6+ years) (L25) | job creation in the nontradable sector (J68) |
| local income changes (H73) | investment opportunities for firms (F23) |
| local income shocks (J69) | young firms' job creation (L26) |
| local bank concentration (G21) | startup employment responsiveness (M13) |
| young firms (M13) | net employment growth (J23) |