Are Founders Non-Substitutable? Evidence from Nascent Firms where a Founder Dies

Abstract:     
This paper tests an assumption from a large literature on financial frictions and credit constraints; that founders of new firms are non-substitutable. I exploit variation in founder death in a large sample of representative start-ups from Norway. Across a variety of tests, the results consistently point towards small adverse effects of founder loss on start-up performance. Although the findings do not imply that founders are fully substitutable, they suggest that, for representative start-ups, the degree of non-substitutability is surprisingly low. This finding has implications for both the likely source of credit constraints and for how we view the entrepreneur.

Keywords: entrepreneurship, human capital, start-up, theory of the firm

JEL Classifications: J23, D21, G39

Working Paper Series