Firm Age, Investment Opportunities, and Job Creation

50 Pages Posted: 25 Jan 2014 Last revised: 12 Aug 2015

See all articles by Manuel Adelino

Manuel Adelino

Duke University; Duke Innovation & Entrepreneurship Initiative; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Song Ma

Yale School of Management

David T. Robinson

Fuqua School of Business, Duke University; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Multiple version iconThere are 2 versions of this paper

Date Written: January 2014

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.

Suggested Citation

Adelino, Manuel and Ma, Song and Robinson, David T., Firm Age, Investment Opportunities, and Job Creation (January 2014). NBER Working Paper No. w19845. Available at SSRN: https://ssrn.com/abstract=2384302

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Song Ma

Yale School of Management ( email )

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David T. Robinson

Fuqua School of Business, Duke University ( email )

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National Bureau of Economic Research (NBER)

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