Lowering the Bar? External Conditions, Opportunity Costs, and High-Tech Startup Outcomes

64 Pages Posted: 7 Jan 2019 Last revised: 17 Jul 2020

See all articles by Annamaria Conti

Annamaria Conti

University of Lausanne

Maria P. Roche

Georgia Institute of Technology - Scheller College of Business

Date Written: December 19, 2018

Abstract

We assess the heterogeneous impact of economic downturns on individuals’ decisions to bring high-technology ideas to the market in the form of new ventures. We thereby examine how worsening labor market conditions influence individuals’ opportunity costs of starting new ventures, the resulting composition of the entrepreneurial pool, and startup performance outcomes. Using a rich dataset of startup founders in the biotechnology and medical device sectors, we find that an increase in the unemployment rate is associated with a substantial rise in the share of entrepreneurs who are most sensitive to worsening labor market conditions. Additionally, we find that startups founded by these entrepreneurs display lower financial and innovative performance than startups founded by entrepreneurs who are relatively insensitive to business cycles. Finally, we provide suggestive evidence that individuals’ heterogeneous response to worsening labor market conditions is a relevant factor in explaining the negative relationship between unemployment and startup performance outcomes.

Previously circulated as: When Push Comes to Shove: External Conditions, Opportunity Costs, and Startup Outcomes

Keywords: Startups, Necessity Entrepreneurship, Economic Conditions, Recessions, Startup Performance

JEL Classification: G24, J11, J18, J21, J24, J64, M13, O30

Suggested Citation

Conti, Annamaria and Roche, Maria, Lowering the Bar? External Conditions, Opportunity Costs, and High-Tech Startup Outcomes (December 19, 2018). Georgia Tech Scheller College of Business Research Paper No. 19-01, Available at SSRN: https://ssrn.com/abstract=3303988 or http://dx.doi.org/10.2139/ssrn.3303988

Annamaria Conti (Contact Author)

University of Lausanne ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015
Switzerland

Maria Roche

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

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