More Money, More Options? The Effect of Cash Windfalls on Entrepreneurial Activities in Small Businesses

Using a novel setting in which retailers receive bonuses when selling jackpot winning lottery tickets, we show that large windfalls lead to both existing business expansion and new business creation. New ventures are larger and have high survival rates; they tend to emerge in nonretail industries, substituting for existing business expansion. We also show that high-quality owners who are financially constrained respond the most to cash windfalls. Our findings contrast with the prevailing view that small businesses lack the desire to grow and highlight that financial frictions not only impede growth but also limit industry choices for constrained entrepreneurs.

Keywords: cash windfall, cash transfers, small businesses, entrepreneurship, Mega Millions, Powerball, lottery

JEL Classification: G32, L26, M13

Suggested Citation: Suggested Citation

Cespedes, Jacelly and Huang, Xing and Parra, Carlos, More Money, More Options? The Effect of Cash Windfalls on Entrepreneurial Activities in Small Businesses (July 10, 2023). Cornell SC Johnson College of Business Research Paper , Available at SSRN: https://ssrn.com/abstract=3301451 or http://dx.doi.org/10.2139/ssrn.3301451