Xiao Ren, Chinese University of Hong Kong-Shenzhen
Abstract: We explore the information value of labor market matching by examining the flow of talented employees from successfully exited entrepreneurial firms to less mature start-ups. Using restricted-access US Census data, we find that the presence of these “serial venture employees” positively predicts their new employers’ future success in terms of exit likelihoods, size growth, and innovation productivity. Such predictive power is likely driven by the two-way selection/matching between serial venture employees and their new employers, and is stronger than the predictive power of other high-talent labor such as employees top-paid by their previous employers or those having prior VC-backing/public-firm experience. We further demonstrate the usefulness of this labor-based signal to venture capitalists and job seekers, especially when alternative information sources about the start-ups are limited. Overall, our findings highlight the importance of managerial information about labor market matching in the entrepreneurial world where there is a lack of accounting information.
Discussant: Paige Ouimet, University of North Carolina-Chapel Hill
Abstract: Loyalty programs (LPs) are widely prevalent and typically analyzed in economic research for their role in boosting income. This paper uncovers a novel role of LPs as financing instruments. The rewards issued to and redeemed by consumers cause shifts in firms' present and future cash flows, effectively creating a form of borrowing from consumers. We document three stylized facts about LPs in the airline and hotel industries: 1) LPs serve as significant financing sources, with co-branded credit card programs contributing a large portion; 2) rewards are issued through broad consumption but are redeemed predominantly for consumption related to the issuing firm; 3) LPs generate countercyclical cash flows. We then build a dynamic model of LPs as financing instruments. The model features convenient rewards, which consumers can freely redeem. As a result, the funds raised through LPs emerge endogenously in equilibrium as a result of the interplay between reward issuance and redemption. The model suggests that 1) firms supplying high-value, low-frequency services can leverage LPs more effectively for financing; 2) firms should aim to decouple reward issuance from their business; 3) the cyclical nature of LPs bolsters the financial resilience of procyclical firms.
Abstract: This paper studies corporate investment as a novel channel of political activity by startups. Using project-level data on changes in firms’ investments of IPO proceeds around turnovers of local Chinese politicians, we find that IPO firms initiate new projects and modify existing projects to cater to incoming politicians. Subsequently, they obtain better access to bank credit and government subsidies, while the access of their mature industry peers declines, particularly when investment irreversibility is high. Overall, we provide novel evidence that startups repurpose their uncommitted investments to build political capital at the expense of mature firms whose investment is irreversible.
Discussant: David Schoenherr, Princeton University
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.
