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

63 Pages Posted: 16 Dec 2018 Last revised: 12 Feb 2021

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: February 11, 2021

Abstract

Using a unique setting that exploits the bonuses that retailers earn when selling jackpot winning lottery tickets, we show that large windfalls not only increase revenue and employment but also spur business creation. The new businesses are mainly in nonretail industries and are associated with the closing of existing businesses. There is a pecking order in entrepreneurs' growth decisions: small windfalls increase revenue, whereas windfalls larger than $100,000 trigger business creation and employment. That the probability of creating new businesses increases after constraints cease to bind suggests that wealth effects play an important role in explaining our results.

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, More Money, More Options? The Effect of Cash Windfalls on Entrepreneurial Activities in Small Businesses (February 11, 2021). 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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