Do Temporary Demand Shocks Have Long-Term Effects for Startups?
110 Pages Posted: 17 Aug 2019 Last revised: 19 Apr 2021
Date Written: June 16, 2020
Using procurement auctions and register data, we find that temporary demand shocks have long-term effects on startup outcomes. Startups that win a procurement auction are more than 20% larger in terms of sales and employment than startups that narrowly lose an auction, even several years after the contract work has ended. The effects are unique to startups and economically large; about 50% of the contract value is transmitted into long run sales. The analysis suggests learning-by-doing from contract work as a plausible mechanism. Overall, our results point to the importance of path dependence in shaping the long-term outcomes of startups.
Keywords: entrepreneurship, path dependency, startups
JEL Classification: JEL D21, D24, J23, L11, L25, G39
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