Understanding the Size and Profitability of Firms: The Role of a Biological Factor
AbstractWe collect information on prenatal testosterone in a large sample of entrepreneurs by measuring the length of their 2th to 4th fingers in face to face interviews. Entrepreneurs with higher exposure to prenatal testosterone (lower second to fourth digit ratio) manage larger firms, are matched with larger firms when acquire control and experience faster average growth over the years they manage the firm. We also find that prenatal testosterone is correlated with elicited measures of entrepreneurial skills such as ability to stand work, and the latter are correlated with firm size. This evidence suggests entrepreneurial skills have a biological component and is consistent with models of the size distribution of firms based on entrepreneurial ability. However, firms run by high-testosterone entrepreneurs have lower profitability as measured by return on assets. We offer evidence that this is because the same biological factor that enhances entrepreneurial skills also induces empire building preferences, which leads high-testosterone entrepreneurs to target a firm size that exceeds the profit maximizing value.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by European University Institute in its series Economics Working Papers with number ECO2011/01.
Date of creation: 2011
Date of revision:
Contact details of provider:
Postal: Badia Fiesolana, Via dei Roccettini, 9, 50016 San Domenico di Fiesole (FI) Italy
Web page: http://www.eui.eu/ECO/
More information through EDIRC
Firm size distribution; Entrepreneurial success; Digit ratio;
Other versions of this item:
- Luigi Guiso & Aldo Rustichini, 2010. "Understanding the size and profitability of firms: The role of a biological factor," EIEF Working Papers Series 1019, Einaudi Institute for Economics and Finance (EIEF), revised Dec 2010.
- Guiso, Luigi & Rustichini, Aldo, 2011. "Understanding the size and profitability of firms: The role of a biological factor," CEPR Discussion Papers 8205, C.E.P.R. Discussion Papers.
- L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
- L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
- L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
- D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-26 (All new papers)
- NEP-BEC-2011-03-26 (Business Economics)
- NEP-CBE-2011-03-26 (Cognitive & Behavioural Economics)
- NEP-ENT-2011-03-26 (Entrepreneurship)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Oriana Bandiera & Luigi Guiso & Andrea Prat & Raffaella Sadun, 2012.
"Matching Firms, Managers, and Incentives,"
CEP Discussion Papers
dp1144, Centre for Economic Performance, LSE.
- Oriana Bandiera & Luigi Guiso & Andrea Prat & Raffaella Sadun, 2009. "Matching Firms, Managers and Incentives," Economics Working Papers ECO2009/14, European University Institute.
- Oriana Bandiera & Luigi Guiso & Andrea Prat & Raffaella Sadun, 2010. "Matching Firms, Managers, and Incentives," Harvard Business School Working Papers 10-073, Harvard Business School, revised Aug 2011.
- Oriana Bandiera & Andrea Prat & Luigi Guiso & Raffaella Sadun, 2011. "Matching Firms, Managers and Incentives," NBER Working Papers 16691, National Bureau of Economic Research, Inc.
- Bandiera, Oriana & Guiso, Luigi & Prat, Andrea & Sadun, Raffaella, 2009. "Matching Firms, Managers, and Incentives," CEPR Discussion Papers 7207, C.E.P.R. Discussion Papers.
- Oriana Bandiera & Luigi Guiso & Andrea Prat & Raffaella Sadun, 2009. "Matching Firms, Managers, and Incentives," EIEF Working Papers Series 0901, Einaudi Institute for Economics and Finance (EIEF), revised Feb 2009.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:CitEc Project, subscribe to its RSS feed for this item.
- Humphery-Jenner, Mark & Powell, Ronan, 2014. "Firm size, sovereign governance, and value creation: Evidence from the acquirer size effect," Journal of Corporate Finance, Elsevier, vol. 26(C), pages 57-77.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marcia Gastaldo).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.