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Do Temporary Demand Shocks Have Long-Term Effects for Startups?

Author

Listed:
  • Hans K Hvide
  • Tom G Meling
  • Tarun Ramadorai

Abstract

Using procurement auctions and register data, we find that temporary demand shocks have long-term effects for startups. Startups that win a procurement auction have 20 higher sales and employment and are more profitable than startups that narrowly lose an auction, even several years after the contract work has ended. There are no such effects for mature firms. The effects for startups are large: about 50 of the contract value is transmitted into long-term sales. Our analysis suggests learning-by-doing as a plausible mechanism. Overall, our results point to the importance of path dependence in shaping the long-term outcomes of startups.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online

Suggested Citation

  • Hans K Hvide & Tom G Meling & Tarun Ramadorai, 2023. "Do Temporary Demand Shocks Have Long-Term Effects for Startups?," The Review of Financial Studies, Society for Financial Studies, vol. 36(1), pages 317-350.
    • Handle: RePEc:oup:rfinst:v:36:y:2023:i:1:p:317-350.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhac028
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    Cited by:

    1. Kory Kroft & Yao Luo & Magne Mogstad & Bradley Setzler, 2025. "Imperfect Competition and Rents in Labor and Product Markets: The Case of the Construction Industry," American Economic Review, American Economic Association, vol. 115(9), pages 2926-2969, September.
    2. Yan, Muci & Ren, Xiaohang & Pan, Zhaoyi, 2025. "Government procurement and corporate vertical specialization," Finance Research Letters, Elsevier, vol. 77(C).
    3. J. David Brown & Matthew Denes & Ran Duchin & John Hackney, 2024. "How Big is Small? The Economic Effects of Access to Small Business Subsidies," Working Papers 24-28, Center for Economic Studies, U.S. Census Bureau.
    4. Joan Farre‐Mensa & Deepak Hegde & Alexander Ljungqvist, 2020. "What Is a Patent Worth? Evidence from the U.S. Patent “Lottery”," Journal of Finance, American Finance Association, vol. 75(2), pages 639-682, April.
    5. Diana Bonfim & Miguel A. Ferreira & Francisco Queiro & Sujiao (Emma) Zhao, 2023. "Fiscal policy and credit supply: The procurement channel," Nova SBE Working Paper Series wp644, Universidade Nova de Lisboa, Nova School of Business and Economics.
    6. Krieger, Bastian & Füner, Lena & Prüfer, Malte, 2024. "Which start-ups win public procurement tenders?," ZEW Discussion Papers 24-072, ZEW - Leibniz Centre for European Economic Research.
    7. Brogaard, Jonathan & Gerasimova, Nataliya & Rohrer, Maximilian, 2024. "The effect of female leadership on contracting from Capitol Hill to Main Street," Journal of Financial Economics, Elsevier, vol. 155(C).
    8. Paul Carrillo & Dave Donaldson & Dina Pomeranz & Monica Singhal, 2023. "Misallocation in Firm Production: A Nonparametric Analysis Using Procurement Lotteries," NBER Working Papers 31311, National Bureau of Economic Research, Inc.
    9. Diana Bonfim & Sujiao Zhao & Miguel A. Ferreira, 2021. "Sovereign-Bank Diabolic Loop: The Government Procurement Channel," Working Papers w202109, Banco de Portugal, Economics and Research Department.
    10. Pietro Santoleri & Andrea Mina & Alberto Di Minin & Irene Martelli, 2024. "The Causal Effects of R&D Grants: Evidence from a Regression Discontinuity," The Review of Economics and Statistics, MIT Press, vol. 106(6), pages 1495-1510, November.

    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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