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Firm Age, Investment Opportunities, and Job Creation

Author

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  • Manuel Adelino
  • Song Ma
  • David T. Robinson

Abstract

This paper asks whether startups react more to changing investment opportunities than more mature firms do. We use the fact that a region's pre-existing industrial structure creates exogenous variation in the severity of its exposure to nation-wide manufacturing shocks to develop an instrument for changing investment opportunities, and examine employment creation in the non-tradable sector as a response to those opportunities. Startups are much more responsive to changing local economic conditions than older firms. Moreover, their responsiveness doubles in areas with better access to small business finance, suggesting that financing constraints are an important brake on job creation in the startup sector. Although we focus mostly on the non-tradable sector for empirical identification, our results extend to other sectors of the economy, indicating that the mechanisms we uncover are economically pervasive. This suggests that factors like organizational flexibility and innovativeness may be important drivers of job creation among startups.

Suggested Citation

  • Manuel Adelino & Song Ma & David T. Robinson, 2014. "Firm Age, Investment Opportunities, and Job Creation," NBER Working Papers 19845, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:19845
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Brown, J. David & Earle, John S. & Morgulis, Yana, 2015. "Job Creation, Small vs. Large vs. Young, and the SBA," IZA Discussion Papers 9489, Institute of Labor Economics (IZA).
    2. Agnew, Kerri & Lyons, Ronan C., 2018. "The impact of employment on housing prices: Detailed evidence from FDI in Ireland," Regional Science and Urban Economics, Elsevier, vol. 70(C), pages 174-189.
    3. Lawless, Martina & O'Toole, Conor & Lambert, Derek, 2014. "Financing SMEs in Recovery: Evidence for Irish Policy Options," Research Series, Economic and Social Research Institute (ESRI), number BKMNEXT276.
    4. Pugsley, Benjamin & Sahin, Aysegul, 2014. "Grown-up business cycles," Staff Reports 707, Federal Reserve Bank of New York, revised 01 Sep 2015.
    5. Auer, Benjamin R., 2016. "On time-varying predictability of emerging stock market returns," Emerging Markets Review, Elsevier, vol. 27(C), pages 1-13.
    6. Carissima Mathen, 2014. "Crowdsourcing Sexual Objectification," Laws, MDPI, Open Access Journal, vol. 3(3), pages 1-24, August.
    7. Ron Jarmin & C.J. Krizan & Adela Luque, 2014. "Owner Characteristics And Firm Performance During The Great Recession," Working Papers 14-36, Center for Economic Studies, U.S. Census Bureau.
    8. Beltratti, Andrea & Paladino, Giovanna, 2015. "Bank leverage and profitability: Evidence from a sample of international banks," Review of Financial Economics, Elsevier, vol. 27(C), pages 46-57.
    9. Hanspal, Tobin, 2016. "The effect of personal financing disruptions on entrepreneurship," SAFE Working Paper Series 161, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G3 - Financial Economics - - Corporate Finance and Governance
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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