Lowering the Bar? External Conditions, Opportunity Costs, and High-Tech Start-Up Outcomes

Annamaria Conti () and Maria P. Roche ()
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Annamaria Conti: Scheller College of Business, Georgia Institute of Technology, Atlanta, Georgia 30308; HEC Lausanne, CH-1015 Lausanne, Switzerland
Maria P. Roche: Scheller College of Business, Georgia Institute of Technology, Atlanta, Georgia 30308; Harvard Business School, Harvard University, Boston, Massachusetts 02163

Organization Science, 2021, vol. 32, issue 4, 965-986

Abstract: We assess the heterogeneous impact of economic downturns on individuals’ decisions to bring high-technology ideas to the market in the form of new ventures. We thereby examine how worsening labor market conditions influence individuals’ opportunity costs of starting new ventures, the resulting composition of the entrepreneurial pool, and start-up performance outcomes. Using a rich data set of start-up founders in the biotechnology and medical device sectors, we find that an increase in the unemployment rate is associated with a substantial rise in the share of entrepreneurs who are most sensitive to worsening labor market conditions. Additionally, we find that start-ups founded by these entrepreneurs display lower financial and innovative performance than start-ups founded by entrepreneurs who are relatively insensitive to business cycles. Finally, we provide suggestive evidence that individuals’ heterogeneous response to worsening labor market conditions is a relevant factor in explaining the negative relationship between unemployment and start-up performance outcomes.

Keywords: start-ups; opportunity costs; economic conditions; recessions; start-up performance (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ororsc:v:32:y:2021:i:4:p:965-986

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