IDEAS home Printed from https://ideas.repec.org/a/eee/reecon/v72y2018i1p65-85.html
   My bibliography  Save this article

Understanding the size and profitability of firms: The role of a biological factor

Author

Listed:
  • Guiso, Luigi
  • Rustichini, Aldo

Abstract

In a large sample of entrepreneurs, 2D:4D (second-to-fourth digit) ratio and managerial performance are studied. Entrepreneurs with lower ratio manage larger firms, manage larger firms when acquire control and experience faster average growth. Firms run by high prenatal testosterone entrepreneurs have lower profitability as measured by return on assets and return on sales. Prenatal testosterone is correlated with elicited measures of entrepreneurial skills, like work effort and optimism and the latter are correlated with firm size. This evidence suggests entrepreneurial ability has a biological component and is consistent with models of the size distribution of firms based on entrepreneurial ability.

Suggested Citation

  • Guiso, Luigi & Rustichini, Aldo, 2018. "Understanding the size and profitability of firms: The role of a biological factor," Research in Economics, Elsevier, vol. 72(1), pages 65-85.
  • Handle: RePEc:eee:reecon:v:72:y:2018:i:1:p:65-85
    DOI: 10.1016/j.rie.2017.04.006
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1090944317301035
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.rie.2017.04.006?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Erzo G. J. Luttmer, 2010. "Models of firm heterogeneity and growth," Working Papers 678, Federal Reserve Bank of Minneapolis.
    2. Oriana Bandiera & Luigi Guiso & Andrea Prat & Raffaella Sadun, 2015. "Matching Firms, Managers, and Incentives," Journal of Labor Economics, University of Chicago Press, vol. 33(3), pages 623-681.
    3. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    4. Xavier Gabaix, 2009. "Power Laws in Economics and Finance," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 255-294, May.
    5. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-1177, December.
    6. Stephen Hymer & Peter Pashigian, 1962. "Firm Size and Rate of Growth," Journal of Political Economy, University of Chicago Press, vol. 70(6), pages 556-556.
    7. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
    8. Erzo G.J. Luttmer, 2010. "Models of Growth and Firm Heterogeneity," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 547-576, September.
    9. Prescott, Edward C & Visscher, Michael, 1980. "Organization Capital," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 446-461, June.
    10. Sherwin Rosen, 1982. "Authority, Control, and the Distribution of Earnings," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 311-323, Autumn.
    11. Zhang, Zhen & Zyphur, Michael J. & Narayanan, Jayanth & Arvey, Richard D. & Chaturvedi, Sankalp & Avolio, Bruce J. & Lichtenstein, Paul & Larsson, Gerry, 2009. "The genetic basis of entrepreneurship: Effects of gender and personality," Organizational Behavior and Human Decision Processes, Elsevier, vol. 110(2), pages 93-107, November.
    12. Nicolaou, Nicos & Shane, Scott & Cherkas, Lynn & Spector, Tim D., 2009. "Opportunity recognition and the tendency to be an entrepreneur: A bivariate genetics perspective," Organizational Behavior and Human Decision Processes, Elsevier, vol. 110(2), pages 108-117, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Henri Njangang & Alim Beleck & Sosson Tadadjeu & Brice Kamguia, 2021. "Do ICTs drive wealth inequality? Evidence from a dynamic panel analysis," Research Africa Network Working Papers 21/057, Research Africa Network (RAN).
    2. Ferrante, Francesco & Ruiu, Gabiele, 2014. "Entrepreneurship. How important are institutions and culturally-based prior beliefs?," MPRA Paper 41915, University Library of Munich, Germany.
    3. Federico Belotti & Edoardo Di Porto & Gianluca Santoni, 2021. "The effect of local taxes on firm performance: Evidence from geo‐referenced data," Journal of Regional Science, Wiley Blackwell, vol. 61(2), pages 492-510, March.
    4. Mion, Giordano & Opromolla, Luca David, 2014. "Managers' mobility, trade performance, and wages," Journal of International Economics, Elsevier, vol. 94(1), pages 85-101.
    5. Oriana Bandiera & Luigi Guiso & Andrea Prat & Raffaella Sadun, 2015. "Matching Firms, Managers, and Incentives," Journal of Labor Economics, University of Chicago Press, vol. 33(3), pages 623-681.
    6. Gambacorta, Leonardo & Frost, Jon & Gambacorta, Romina, 2020. "The Matthew effect and modern finance: on the nexus between wealth inequality, financial development and financial technology," CEPR Discussion Papers 15014, C.E.P.R. Discussion Papers.
    7. Enrico Santarelli & Hien Thu Tran, 2017. "Young innovative companies: Are they high performers in transition economies? Evidence for Vietnam," The Journal of Technology Transfer, Springer, vol. 42(5), pages 1052-1076, October.
    8. Mion, Giordano & Opromolla, Luca David & Sforza, Alessandro, 2016. "The Diffusion of Knowledge via Managers' Mobility," CEPR Discussion Papers 11706, C.E.P.R. Discussion Papers.
    9. Henri Njangang & Alim Beleck & Sosson Tadadjeu & Brice Kamguia, 2021. "Do ICTs drive wealth inequality? Evidence from a dynamic panel analysis," Working Papers 21/057, European Xtramile Centre of African Studies (EXCAS).
    10. John V.C. Nye & Maxim V. Bryukhanov & Sergiy S. Polyachenko, 2014. "2D:4D and Life Outcomes: Evidence from the Russian RMLS Survey," HSE Working papers WP BRP 78/EC/2014, National Research University Higher School of Economics.
    11. Werner Bönte & Vivien D. Procher & Diemo Urbig, 2016. "Biology and Selection into Entrepreneurship—The Relevance of Prenatal Testosterone Exposure," Entrepreneurship Theory and Practice, , vol. 40(5), pages 1121-1148, September.
    12. Schipper, Burkhard C., 2023. "Sex hormones and choice under risk," Journal of Economic Psychology, Elsevier, vol. 96(C).
    13. Hossain, Md Noman & Rabarison, Monika K. & Ater, Brandon & Sobngwi, Christian K., 2023. "CEO marital status and dividend policy," Journal of Corporate Finance, Elsevier, vol. 78(C).
    14. Leandro D’Aurizio & Livio Romano, 2011. "Family Firms and the Great Recession: Out of Sight, Out of Mind?," Economics Working Papers ECO2011/28, European University Institute.
    15. Njangang, Henri & Beleck, Alim & Tadadjeu, Sosson & Kamguia, Brice, 2022. "Do ICTs drive wealth inequality? Evidence from a dynamic panel analysis," Telecommunications Policy, Elsevier, vol. 46(2).
    16. Kuster, Christian & Álvarez, Jorge & Lezcano, Mikaela & Álvarez-Vaz, Ramón Dr., 2022. "Desempeño Económico De Las Empresas Agropecuarias Uruguayas: Estudio Sobre Su Evolución A Través De La Técnica De Clústers Longitudinales A Partir De Datos Contables (Economic Performance Of Uruguayan," OSF Preprints p8zk9, Center for Open Science.
    17. Henri Njangang & Alim Beleck & Sosson Tadadjeu & Brice Kamguia, 2021. "Do ICTs drive wealth inequality? Evidence from a dynamic panel analysis," Working Papers of the African Governance and Development Institute. 21/057, African Governance and Development Institute..
    18. Emanuela Carbonara & Hien Thu Tran & Enrico Santarelli, 2020. "Determinants of novice, portfolio, and serial entrepreneurship: an occupational choice approach," Small Business Economics, Springer, vol. 55(1), pages 123-151, June.
    19. 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.
    20. Chen Ge & Shu-Guang Zhang & Bin Wang, 2020. "Modeling the joint distribution of firm size and firm age based on grouped data," PLOS ONE, Public Library of Science, vol. 15(7), pages 1-19, July.
    21. Cobb-Clark, Deborah A., 2016. "Biology and Gender in the Labor Market," IZA Discussion Papers 10386, Institute of Labor Economics (IZA).
    22. Nikolai Roussanov & Pavel Savor, 2014. "Marriage and Managers' Attitudes to Risk," Management Science, INFORMS, vol. 60(10), pages 2496-2508, October.
    23. Frost, Jon & Gambacorta, Leonardo & Gambacorta, Romina, 2022. "On the nexus between wealth inequality, financial development and financial technology," Journal of Economic Behavior & Organization, Elsevier, vol. 202(C), pages 429-451.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Erzo G.J. Luttmer, 2010. "Models of Growth and Firm Heterogeneity," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 547-576, September.
    2. Holmstrom, Bengt R. & Tirole, Jean, 1989. "The theory of the firm," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 2, pages 61-133, Elsevier.
    3. Acemoglu, Daron & Cao, Dan, 2015. "Innovation by entrants and incumbents," Journal of Economic Theory, Elsevier, vol. 157(C), pages 255-294.
    4. Marko Koethenbuerger & Michael E Stimmelmayr, 2022. "The Efficiency Costs of Dividend Taxation with Managerial Firms," The Economic Journal, Royal Economic Society, vol. 132(643), pages 1123-1149.
    5. Alex Coad, 2007. "Firm Growth: a Survey," Post-Print halshs-00155762, HAL.
    6. Oriana Bandiera & Luigi Guiso & Andrea Prat & Raffaella Sadun, 2015. "Matching Firms, Managers, and Incentives," Journal of Labor Economics, University of Chicago Press, vol. 33(3), pages 623-681.
    7. Hengjie Ai & Dana Kiku & Rui Li & Jincheng Tong, 2021. "A Unified Model of Firm Dynamics with Limited Commitment and Assortative Matching," Journal of Finance, American Finance Association, vol. 76(1), pages 317-356, February.
    8. Luis Garicano & Claire Lelarge & John Van Reenen, 2016. "Firm Size Distortions and the Productivity Distribution: Evidence from France," American Economic Review, American Economic Association, vol. 106(11), pages 3439-3479, November.
    9. Katsuya Takii, 2003. "Prediction Ability," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 80-98, January.
    10. Luis Garicano & Esteban Rossi-Hansberg, 2015. "Knowledge-Based Hierarchies: Using Organizations to Understand the Economy," Annual Review of Economics, Annual Reviews, vol. 7(1), pages 1-30, August.
    11. Alexander Monge-Naranjo, 2012. "Knowledge Spillovers and The Optimal Taxation of Multinational Firms," 2012 Meeting Papers 593, Society for Economic Dynamics.
    12. Jakub Growiec & Fabio Pammolli & Massimo Riccaboni, 2020. "Innovation and Corporate Dynamics: A Theoretical Framework," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 12(1), pages 1-45, March.
    13. Xu, Jianhuan, 2017. "Growing through the merger and acquisition," Journal of Economic Dynamics and Control, Elsevier, vol. 80(C), pages 54-74.
    14. Loredana Fattorini & Mahdi Ghodsi & Armando Rungi, 2020. "Cohesion Policy Meets Heterogeneous Firms," Journal of Common Market Studies, Wiley Blackwell, vol. 58(4), pages 803-817, July.
    15. Adrien Bilal & Niklas Engbom & Simon Mongey & Giovanni L. Violante, 2022. "Firm and Worker Dynamics in a Frictional Labor Market," Econometrica, Econometric Society, vol. 90(4), pages 1425-1462, July.
    16. Raghuram G. Rajan & Luigi Zingales, 2001. "The Firm as a Dedicated Hierarchy: A Theory of the Origins and Growth of Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(3), pages 805-851.
    17. Ariel T. Burstein & Alexander Monge-Naranjo, 2009. "Foreign Know-How, Firm Control, and the Income of Developing Countries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(1), pages 149-195.
    18. Bloom, Nicholas & Van Reenen, John, 2011. "Human Resource Management and Productivity," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 19, pages 1697-1767, Elsevier.
    19. Yanhui Wu, 2011. "A Simple Theory of Managerial Talent, Pay Contracts and Wage Distribution," CEP Discussion Papers dp1067, Centre for Economic Performance, LSE.
    20. Elena Pastorino, 2015. "Job Matching Within And Across Firms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(2), pages 647-671, May.

    More about this item

    Keywords

    Firm size distribution; Entrepreneurial success; Digit ratio;
    All these keywords.

    JEL classification:

    • 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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:reecon:v:72:y:2018:i:1:p:65-85. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622941 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.