Do Temporary Demand Shocks Have Long-Term Effects for Startups?
90 Pages Posted: 17 Aug 2019 Last revised: 17 Jun 2020
Date Written: June 16, 2020
Using detailed procurement auctions and register data, we find that temporary demand shocks have long-term effects on startup outcomes. Startups that win a procurement auction are more than 20% larger in terms of sales and employment than startups that narrowly lose an auction, even several years after the contract work ends. For mature firms, we do not find long-term effects of
auction wins. The persistent effects of temporary demand shocks for startups appear driven by learning-by-doing effects and by winning startups undertaking irreversible investments. The results point to the importance of path dependence in shaping the long-term outcomes of startups.
Keywords: entrepreneurship, path dependency, startups
JEL Classification: JEL D21, D24, J23, L11, L25, G39
Suggested Citation: Suggested Citation