By Patrick L. Warren
I'm back this week to finish up my report on the SIOE session at ASSA. But first, a reminder. Submissions for SIOE2016 were due yesterday, but I think you can probably sneak a late submission in today. Go to the portal and submit today.
The next paper, "Serial Entrepreneurship: Learning by Doing?" by Lafontaine and Shaw (ungated), examines the phenomenon of serial entrepreneurship, where a single individual opens a series of businesses. Using data from the last 20 years in Texas, they can track the identity of the owner of every firm that collects sales tax, although they limit their attention to retail firms, broadly defined. They use these data to investigate whether businesses opened by serial entrepreneurs are differentially likely to succeed and, if so, why? In short, they find that serial entrepreneurship is fairly common, with about a quarter of new firms being founded by an owner who have previously owned a firm. Furthermore, firms founded by experienced entrepreneurs last longer: for each previous business the founder has owned the new firm is about 3 percentage points more likely to survive one, two, and three years. The authors then present some evidence that this is a learning effect, rather than underlying exogenous heterogeneity, as the foundation of future firms do not show a similar relationship with present firm survival. It seems like experience in entrepreneurship is valuable, per se.
Finally, "Enforcing Covenants Not to Compete: The Lifecycle Impact on New Firms" by Balasubramanian, Sakakibara, and Starr continues the overall theme by analyzing a determinant of entrpreneurship, in this case the presence and stength of non-compete covenants between existing firms and their employees. They look at the formation of new firms in 30 states from 1990-2008. At the most basic level, they use the policy variation among these states' non-compete-enforcement laws to indentify the effect. At one extreme, California does not enforce non-compete agreements, while at the other, Florida will enforce an agreement even if the employee is fired. They also have a nice diff-in-diff analysis, where the control group consists is lawfirms, since the no state enforces non-competes in the practice of law (they all adopted model language from the American Bar Association) and a diff-in-diff-in-diff contrasting in-industry and out-of-industry spinoffs. A bit in line with the credit-constraint paper we discussed last week, they find that stronger non-compete enforemcent reduces the rate of within-industry spinoffs, but that it raises the average quality of those spinnoffs.
Overall, this was an excellent session. It was well attended and the discussion was lively. We'll have our eye out for interesting papers for next year's session at SIOE2016. I hope to see you there.