More Money, More Options? The Effect of Cash Windfalls on Entrepreneurial Activities in Small Businesses

Using a novel setting in which retailers receive bonuses when selling jackpot winning lottery tickets, we show that large windfalls not only increase the revenue and employment of existing businesses but also spur serial entrepreneurship. Serial ventures occur mainly in nonretail industries. We document a pecking order in entrepreneurs' responses: small windfalls increase revenue, whereas windfalls larger than $100,000 trigger business creation and employment growth. Consistent with wealth effects as an indispensable mechanism, the effects become larger still when cash windfalls far surpass the amount required to start new businesses. Finally, cash windfalls do not lead to financial distress.

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

JEL Classification: G32, L26, M13

Suggested Citation: Suggested Citation

Cespedes, Jacelly and Huang, Xing and Parra, Carlos, More Money, More Options? The Effect of Cash Windfalls on Entrepreneurial Activities in Small Businesses (October 19, 2021). Available at SSRN: https://ssrn.com/abstract=3301451 or http://dx.doi.org/10.2139/ssrn.3301451