Learning from Feedback: Evidence from New Ventures
50 Pages Posted: 5 Oct 2017 Last revised: 12 Jul 2019
Date Written: January 1, 2018
This paper studies how early stage entrepreneurs learn about the quality of their ventures. I assess the effect of negative feedback on venture abandonment using application and judging data from 87 new venture competitions, some of which privately informed ventures of their relative rank. I use a difference-in-differences design and two matching estimators to compare lower and higher ranked losers, across competitions in which they did and did not observe their standing. Receiving negative feedback increased venture abandonment by about 13 percent. The effect occurs quickly, doubles among women founders, and increases with signal precision. It decreases with venture maturity and riskiness.
Keywords: Entrepreneurship, Learning
JEL Classification: G24, G4, L1, L2, L26, O3
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