Jan 27, 2013

When founders die

One way to view our results is that founder death shifts firm quality to the left. For firms in the lower part of the quality distribution the consequence is a higher probability of closing down, while for firms higher up in the quality distribution, the effect will be a significant reduction in firm growth.
That is from Becker & Hvide (January 2013). The title of the paper is "Do Entrepreneurs Matter?."
The abstract:
In the large literature on firm performance, economists have given little attention to entrepreneurs. We use deaths of more than 500 entrepreneurs as a source of exogenous variation, and ask whether this variation can explain shifts in firm performance. Using longitudinal data, we find large and sustained effects of entrepreneurs at all levels of the performance distribution. Entrepreneurs strongly affect firm growth patterns of both very young firms and for firms that have begun to mature. We do not find significant differences between small and larger firms, family and non-family firms, nor between firms located in urban and rural areas, but we do find stronger effects for founders with high human capital. Overall, the results suggest that an often overlooked factor – individual entrepreneurs – plays a large role in affecting firm performance.

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