Locus of Control and Business Formation

81 Pages Posted: 31 Jan 2020 Last revised: 15 Dec 2021

Multiple version iconThere are 2 versions of this paper

Date Written: December 14, 2021

Abstract

This paper brings the insights from management to firm dynamics literature and introduces the notion of locus of control, according to which entrepreneurs can direct their startup efforts toward projects with different target sizes. Firm-level data from the U.S. reveal that businesses which eventually become large tend not to be started in recessions, and that financial conditions at birth are critical for the formation of such enterprises. A version of a standard firm dynamics model with financial frictions and the ability of potential entrepreneurs to choose their target size can account for the data. In the estimated model, financial frictions slow the rate at which growth-oriented businesses expand disproportionately; this discourages entrepreneurs from pursuing such ideas in recessions. From the policy perspective, I highlight the importance of improving the quality of startups rather than increasing their quantity.

Keywords: Business cycles, firm dynamics, financial frictions

JEL Classification: E22, E32, H25

Suggested Citation

Smirnyagin, Vladimir, Locus of Control and Business Formation (December 14, 2021). Available at SSRN: https://ssrn.com/abstract=3514855 or http://dx.doi.org/10.2139/ssrn.3514855

Vladimir Smirnyagin (Contact Author)

Yale University ( email )

New Haven, CT
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
71
Abstract Views
433
rank
380,310
PlumX Metrics