Abstract: Does reducing the cost for entrepreneurs to write more complete contracts with their financiers enhance entrepreneurial success? To shed light on this question, this paper exploits a 2008 French reform that made it less costly for new firms to choose a legal form allowing more complete financial contracts in the company bylaws. Using comprehensive tax-filing data from 2004 to 2015, we find a marked increase in the adoption of that legal form among new firms, leading to higher growth in capital, labor, and revenues in the first three years after creation. The effects are more pronounced for firms with high marginal returns to capital, suggesting that capital misallocation decreases. Our findings highlight the significant role of legal and financial structures in entrepreneurial success, which has policy implications for promoting entrepreneurship.
Discussant: Manpreet Singh, Georgia Institute of Technology
Abhinav Gupta, University of North Carolina-Chapel Hill
Franklin Qian, University of North Carolina-Chapel Hill
Yifan Sun, University of Pennsylvania
Abstract: This paper investigates the causal impact of entrepreneurs' prior experience on startup success. Employing within-country changes in Green Card wait lines to instrument for immigrant first-time entrepreneurs' experience, we uncover that startups led by more experienced founders demonstrate superior funding, patenting, and employee growth. Specifically, each additional year of founder experience leads to a 0.6 p.p. (1 p.p.) increase in the likelihood of a startup undergoing an IPO (growing to over 1000 employees), over the subsequent decade. The larger initial team size, facilitated by the improved ability to recruit former colleagues, explains the observed startup success. Our findings imply that each extra year of experience is worth $170,000, underscoring a critical consideration for policymakers in the design of startup incubators.
Abstract: A majority of small U.S. businesses attempting to reorganize in bankruptcy fail to successfully do so. Subchapter V of Chapter 11 was introduced in 2020 for firms with less than $7.5 million in total liabilities to streamline the process by reducing bankruptcy costs and negotiation frictions, and enabling entrepreneurs to retain their ownership. Employing regression-discontinuity and difference-in-differences designs, we show that many small businesses reorganize under the new procedures that otherwise would have been liquidated. Further, expected creditor recoveries are at least as high in Subchapter V as in similar small business reorganizations, and post-bankruptcy survival rates are no lower. Our results show that the increased ability to preserve small businesses is not associated with a bias toward continuing unviable firms, and that creditors are not harmed by a shift in bargaining power toward small business owners.
