IDEAS home Printed from https://ideas.repec.org/p/eie/wpaper/1019.html
   My bibliography  Save this paper

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

Author

Listed:
  • Luigi Guiso

    (European University Institute and EIEF)

  • Aldo Rustichini

    (Department of Economics, University of Minnesota)

Abstract

We 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.

Suggested Citation

  • 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.
  • Handle: RePEc:eie:wpaper:1019
    as

    Download full text from publisher

    File URL: http://www.eief.it/files/2012/09/wp-19-understanding-the-size-and-profitability-of-firms_the-role-of-a-biological-factor.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    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. 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.
    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. Tran, Hien Thu & Carbonara, Emanuela & Santarelli, Enrico, 2017. "Determinants of Novice, Portfolio and Serial Entrepreneurship: An Occupational Choice Approach," GLO Discussion Paper Series 74, Global Labor Organization (GLO).
    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. Cobb-Clark, Deborah A., 2016. "Biology and Gender in the Labor Market," IZA Discussion Papers 10386, Institute for the Study of Labor (IZA).
    6. 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.
    7. repec:kap:jtecht:v:42:y:2017:i:5:d:10.1007_s10961-016-9475-6 is not listed on IDEAS

    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

    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:eie:wpaper:1019. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Facundo Piguillem). General contact details of provider: http://edirc.repec.org/data/einauit.html .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.