The Role of High-Skilled Foreign Labor in Startup Performance: Evidence from Two Natural Experiments

83 Pages Posted: 6 Oct 2019 Last revised: 1 Oct 2020

See all articles by Jun Chen

Jun Chen

Renmin University of China

Shenje Hshieh

City University of Hong Kong

Feng Zhang

University of Utah - Department of Finance

Date Written: September 28, 2020

Abstract

We examine the role of high-skilled foreign labor in VC-backed startups through two natural experiments. First, we show that winning more H-1B visas in random lotteries enhances VC-backed startups' financial performance, likelihood of going public, and quantity and quality of innovation. Second, we show that the H-1B quota reduction in 2004 caused permanent damage to the performance of startups that previously had used H-1B workers. The findings imply that high-skilled foreign workers possess skills or talents that are difficult to replace and that barriers to securing H-1B visas lower startups’ innovation and financial performance.

Keywords: High-Skilled Foreign Labor, H-1B Visa, VC-Backed Companies, Innovation, Initial Public Offerings (IPOs)

JEL Classification: G24, G28, G32, G34, G38

Suggested Citation

Chen, Jun and Hshieh, Shenje and Zhang, Feng, The Role of High-Skilled Foreign Labor in Startup Performance: Evidence from Two Natural Experiments (September 28, 2020). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3459001 or http://dx.doi.org/10.2139/ssrn.3459001

Jun Chen

Renmin University of China ( email )

Beijing
China

Shenje Hshieh

City University of Hong Kong ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Feng Zhang (Contact Author)

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112-9303
United States

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