Serial entrepreneurs and the macroeconomy

November 8, 2021

Business dynamism has long been recognized as a key driver of aggregate outcomes, with startups and young firms playing a particularly important role. Seemingly small changes to the numbers and growth potential of startups may leave large and persistent footprints on the aggregate economy.

In this paper, the authors argue that entrepreneurs themselves are key determinants of firm performance. Using Quadros de Pessoal, the paper defines serial entrepreneurship as the simultaneous ownership of multiple businesses. The paper documents how firms of serial entrepreneurs (SE) compare to all other, regular (R) businesses and how important they are for aggregate outcomes, including top income inequality.

Serial entrepreneurship occurs across the economy and is not an obscure feature of only a few industries. Moreover, businesses of serial entrepreneurs outperform all other firms along multiple dimensions and disproportionally contribute to aggregate job creation and productivity growth.

The paper documents a “serial entrepreneur premium” – the average difference in a particular characteristic (e.g. growth or size) between SE and R firms – is present throughout firms’ life-cycles. Figure 1 provides a glimpse at some of these differences – firm size and firm exit. The figure shows the superior performance of SE firms, over their entire life-cycles by living longer and growing faster.

Firm size and exit rates by age: serial entrepreneur versus regular firms
Caption: Firm size and exit rates by age: serial entrepreneur versus regular firms

What lies behind the superior performance of serial entrepreneur firms? The results point to (selection on) ex-ante heterogeneity as a key source of success of serial entrepreneurs, rather than learning or favorable ex-post shocks. Using observable characteristics of business owners, the authors show that age and especially education can account for over 20 percent of the estimated premia.

As an outcome of the better performance of SE is that despite the fact that these represent fewer than 3 percent of all business owners, they account for 10-20 percent of top income inequality (defined as the share of income accounted for by the top 10% earners).

Click here to go to the paper by Sónia Félix, Sudipto Karmakar and Petr Sedláček.


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