-
Exploratory Report: Annual Business Survey Ownership Diversity and Its Association with Patenting and Venture Capital Success
October 2024
Working Paper Number:
CES-24-62
The Annual Business Survey (ABS) as the replacement for the Survey of Business Owners (SBO) serves as the principal data source for investigating business ownership of minorities, women, and immigrants. As a combination of SBO, the innovation questions formerly collected in the Business R&D and Innovation Survey (BRDIS), and an R&D module for microbusinesses with fewer than 10 employees, ABS opens new research opportunities investigating how ownership demographics are associated with innovation. One critical issue that ABS is uniquely able to investigate is the role that diversity among ownership teams plays in facilitating innovation or intermediate innovation outcomes in R&D-performing microbusinesses. Earlier research using ABS identified both demographic and disciplinary diversity as strong correlates to new-to-market innovation. This research investigates the extent to which the various forms of diversity also impact tangible innovation related intermediate outcomes such as the awarding of patents or securing venture capital financing for R&D. The other major difference with the earlier work is the focus on R&D-performing microbusinesses that are an essential input to radical innovation through the division of innovative labor. Evidence that disciplinary and/or demographic diversity affect the likelihood of receiving a patent or securing venture capital financing by small, high-tech start-ups may have implications for higher education, affirmative action, and immigration policy.
View Full
Paper PDF
-
Socially Responsible Investment and Gender Equality in the United States Census
August 2024
Working Paper Number:
CES-24-44
With administrative data, we test whether institutional ownership with a social preference is related to employee-level gender equality. We show that the gender pay gap, which is an unexplained part of the lower wages of female employees, does not have a significant relation with socially responsible investments. Next, we show that female directorship strengthens the relation between socially responsible investments and the gender pay gap. When there are female directors, socially responsible investments have a robust correlation with a lower gender pay gap. This is because female directorship alleviates information asymmetry in gender equality.
View Full
Paper PDF
-
Shareholder Power and the Decline of Labor
May 2022
Working Paper Number:
CES-22-17
Shareholder power in the US grew over recent decades due to a steep rise in concentrated
institutional ownership. Using establishment-level data from the US Census Bureau's Longitudinal Business Database for 1982-2015, this paper examines the impact of increases in concentrated institutional ownership on employment, wages, shareholder returns, and labor productivity. Consistent with theory of the firm based on conflicts of interests between shareholders and stakeholders, we find that establishments of firms that experience an increase in ownership by larger and more concentrated institutional shareholders have lower employment and wages. This result holds in both panel regressions with establishment fixed effects and a difference-in-differences design that exploits large increases in concentrated institutional ownership, and is robust to controls for industry and local shocks. The result is more pronounced in industries where labor is relatively less unionized, in more monopsonistic local labor markets, and for dedicated and activist institutional shareholders. The labor losses are accompanied by higher shareholder returns but no improvements in labor productivity, suggesting that shareholder power mainly reallocates rents away from workers. Our results imply that the rise in concentrated institutional ownership could explain about a quarter of the secular decline in the aggregate labor share.
View Full
Paper PDF
-
Incidence and Performance of Spinouts and Incumbent New Ventures: Role of Selection and
Redeployability within Parent Firms
September 2021
Working Paper Number:
CES-21-27
Using matched employer-employee data from 30 U.S. states, we compare spinouts with new ventures formed by incumbents (INCs). We propose a selection-based framework comprising idea selection by parents to internally implement ideas as INCs, entrepreneurial selection by founders to form spinouts, and managerial selection to close ventures. Consistent with parents choosing better ideas in the idea selection stage, we find that INCs perform relatively better than spinouts, and more so with larger parents. Regarding the entrepreneurial selection stage, we find evidence consistent with resource requirements being a greater entry barrier to spinouts and greater information asymmetry promoting spinout formation. Parents' resource redeployment opportunities are associated with lower relative survival of INCs, consistent with their being subject to greater selection pressures in the managerial selection stage.
View Full
Paper PDF
-
Black Entrepreneurs, Job Creation, and Financial Constraints
May 2021
Working Paper Number:
CES-21-11
Black-owned businesses tend to operate with less finance and employ fewer workers than those owned by Whites. Motivated by a simple conceptual framework, we document these facts and show they are causally connected using large firm-level surveys linked to universal employer data from the Census Bureau. We find that the racial financing gap is most pronounced at start-up and tends to narrow with firm age. At any age, Black-owned firms are less likely to receive bank loans, more likely to refrain from applying because they expect denial, and more likely to report that lack of finance reduces their profitability. Yet the observable characteristics of Black entrepreneurs are similar in most respects to Whites, and in some ways - higher education, growth-oriented motivations, and involvement in the business - would seem to imply higher, not lower, demand for finance. Concerning employment, we find that Black-owned firms have on average about 12 percent fewer employees than those owned by Whites, but the difference drops when controlling for firm age and other characteristics. However, when the analysis holds financial variables constant, the results imply that equally well-financed Black-owned rms would be larger than White-owned by about seven percent. Exploiting the credit supply shock of changing assignment to Community Reinvestment Act treatment through a Regression Discontinuity Design in a firm-level panel regression framework, we find that expanded credit access raises employment 5-7 percentage points more at Black-owned businesses than White-owned firms in treated neighborhoods.
View Full
Paper PDF
-
The Disappearing IPO Puzzle: New Insights from Proprietary U.S. Census Data on Private Firms
June 2020
Working Paper Number:
CES-20-20
The U.S. equity markets have experienced a remarkable decline in IPOs since 2000, both in terms of smaller IPO volume and entrepreneurial firms' greater tendency to exit through acquisitions rather than IPOs. Using proprietary U.S. Census data on private firms, we conduct a comprehensive analysis of the above two notable trends and provide several new insights. First, we find that the dramatic reduction in U.S. IPOs is not due to a weaker economy that is unable to produce enough 'exit eligible' private firms: in fact, the average total factor productivity (TFP) of private firms is slightly higher post-2000 compared to pre-2000. Second, we do not find evidence supporting the conventional wisdom that the disappearing IPO puzzle is mainly driven by the decline in IPO propensity among small private firms. Third, we do not find a significant change in the characteristics of private firms exiting through acquisitions from pre- to post-2000. Fourth, the decline in IPO propensity persists even after we account for the changing characteristics of private firms over time. Fifth, we show that the difference in TFP between IPO firms and acquired firms (and between IPO firms and firms remaining private) went up considerably post-2000 compared to pre-2000. Finally, venture-capital-backed (VC-backed) IPO firms have significantly lower postexit long-term TFP than matched VC-backed private firms in the post-2000 era relative to the pre- 2000 era, while this pattern is absent among IPO and matched private firms without VC backing. Overall, our results strongly support the explanations based on standalone public firms' greater sensitivity to product market competition and entrepreneurial firms' access to more abundant private equity financing in the post-2000 era. We find mixed evidence regarding the explanations based on the smaller net financial benefits of being standalone public firms or the increased need for confidentiality after 2000.
View Full
Paper PDF
-
R&D or R vs. D?
Firm Innovation Strategy and Equity Ownership
April 2020
Working Paper Number:
CES-20-14
We analyze a unique dataset that separately reports research and development expenditures
for a large panel of public and private firms. Definitions of 'research' and 'development' in this dataset, respectively, correspond to definitions of knowledge 'exploration' and 'exploitation' in the innovation theory literature. We can thus test theories of how equity ownership status relates to innovation strategy. We find that public firms have greater research intensity than private firms, inconsistent with theories asserting private ownership is more conducive to exploration. We also find public firms invest more intensely in innovation of all sorts. These results suggest relaxed financing constraints enjoyed by public firms, as well as their diversified shareholder bases, make them more conducive to investing in all types of innovation. Reconciling several seemingly conflicting results in prior research, we find private-equity-owned firms, though not less innovative overall than other private firms, skew their innovation strategies toward development and away from research.
View Full
Paper PDF
-
Do Short-Term Incentives Affect Long-Term Productivity?
March 2020
Working Paper Number:
CES-20-10
Previous research shows that stock repurchases that are caused by earnings management lead to reductions in firm-level investment and employment. It is natural to expect firms to cut less productive investment and employment first, which could lead to a positive effect on firm-level productivity. However, using Census data, we find that firms make cuts across the board irrespective of plant productivity. This pattern seems to be associated with frictions in the labor market. Specifically, we find evidence that unionization of the labor force may prevent firms from doing efficient downsizing, forcing them to engage in easy or expedient downsizing instead. As a result of this inefficient downsizing, EPS-driven repurchases lead to a reduction in long-term productivity.
View Full
Paper PDF
-
Age and High-Growth Entrepreneurship
April 2018
Working Paper Number:
CES-18-23
Many observers, and many investors, believe that young people are especially likely to produce the most successful new firms. We use administrative data at the U.S. Census Bureau to study the ages of founders of growth-oriented start-ups in the past decade. Our primary finding is that successful entrepreneurs are middle-aged, not young. The mean founder age for the 1 in 1,000 fastest growing new ventures is 45.0. The findings are broadly similar when considering high-technology sectors, entrepreneurial hubs, and successful firm exits. Prior experience in the specific industry predicts much greater rates of entrepreneurial success. These findings strongly reject common hypotheses that emphasize youth as a key trait of successful entrepreneurs.
View Full
Paper PDF
-
Creditor Rights, Technology Adoption, and
Productivity: Plant-Level Evidence
April 2018
Working Paper Number:
CES-18-20
I analyze the impact of stronger creditor rights on productivity using plant-level data from the U.S. Census Bureau. Following the adoption of anti-recharacterization laws that give lenders greater access to the collateral of firms in financial distress, total factor productivity of treated plants increases by 2.6 percent. This effect is mainly observed among plants belonging to financially constrained firms. Furthermore, treated plants invest in capital of younger vintage and newer technology, and become more capital-intensive. My results suggest that stronger creditor rights relax borrowing constraints and help firms adopt more efficient production technologies.
View Full
Paper PDF
