How do Large Companies Affect Entrepreneurial Entry: Evidence From Amazon HQ2 Search
48 Pages Posted: 14 Nov 2018 Last revised: 21 Mar 2019
Date Written: March 15, 2019
This paper presents causal evidence that large companies positively affect entrepreneurship through early-stage funding and later-stage acquisition. Using a difference-in-differences approach that relies on Amazon's selection of 20 HQ2 finalist cities as an exogenous event, I find that after Amazon made the selection of these cities, i) startups with a high probability of getting acquired or funded by Amazon are 7% more likely to be founded in one of the 20 finalist cities, ii) for startups with the high probability that were founded in one of the 20 finalist cities, their founders are less likely to be local entrepreneurs, and iii) startups with the low probability were not impacted by the announcement of the 20 finalist cities. The implication of these findings is threefold. First, the prospects of being acquired or funded by large firms have a significant positive effect on entrepreneurship. Second, big businesses may not be to blame for the decline in American entrepreneurship over the last 30 years. Third, for cities that were not selected as the final HQ2 location, they have already benefited from being selected as the finalists. These results should be interesting to the policy makers because of the growing concerns about the impacts of corporate giants on our society as well as the important roles that startups play in the job creation and economic growth.
Keywords: Large Companies, Entrepreneurial Entry, Amazon HQ2, Acquisition, Startup Financing
JEL Classification: G34, M13
Suggested Citation: Suggested Citation