The ''Jackpot'' Question: How Do Cash Windfalls Affect Entrepreneurial Activities?

66 Pages Posted: 16 Dec 2018 Last revised: 23 Jun 2020

See all articles by Jacelly Cespedes

Jacelly Cespedes

University of Minnesota - Carlson School of Management

Xing Huang

Washington University in St. Louis - Olin Business School

Carlos Parra

Pontifical Catholic University of Chile - School of Business

Date Written: June 1, 2020

Abstract

How do cash windfalls affect the entrepreneurial activities of typical entrepreneurs in small firms? We use a novel setting that exploits the bonuses retailers earn when selling jackpot-winning lottery tickets. An additional $100,000 increases revenues by $36,561 and employment by 0.87. Large windfalls spur new business creation in non-retail industries, which is associated with the closedown of existing businesses. Consistent with wealth-effects and financial-constraints, the effects are stronger for owners without real properties or in low-income areas. Allowing non-linearities in the effects of cash windfalls, we further separate these two channels and document a pecking order in entrepreneurs' growing decisions.

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

JEL Classification: G32, L26, M13

Suggested Citation

Cespedes, Jacelly and Huang, Xing and Parra, Carlos, The ''Jackpot'' Question: How Do Cash Windfalls Affect Entrepreneurial Activities? (June 1, 2020). Available at SSRN: https://ssrn.com/abstract=3301451 or http://dx.doi.org/10.2139/ssrn.3301451

Jacelly Cespedes (Contact Author)

University of Minnesota - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

HOME PAGE: http://sites.google.com/site/jacellycespedes/

Xing Huang

Washington University in St. Louis - Olin Business School ( email )

Simon Hall 211
Washington University in St. Louis
St. Louis, MO 63130
United States

Carlos Parra

Pontifical Catholic University of Chile - School of Business ( email )

Vicuna Mackenna 4860
Santiago
Chile

HOME PAGE: http://www.carlosrparra.com/

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