More Money, More Options? The Effect of Cash Windfalls on Entrepreneurial Activities in Small Businesses
82 Pages Posted: 16 Dec 2018 Last revised: 11 Jul 2023
Date Written: July 10, 2023
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