Posted: September 4th, 2008 | Filed under: Research, Working Papers | Tags: Entrepreneurship, Prior experiences, Spinoffs, Strategy, Wages | No Comments »
Michael S. Dahl and Steven Klepper
Using the matched employer-employee data set for Denmark and information on the founders of new firms, we analyze the hiring choices of all new firms that entered in 1995-2001. We develop a theoretical model in which the quality of a firm’s employees determines its average cost, a firm’s productivity is based on its pre-entry experience and persistent shocks, and over time firms learn about their productivity. The model predicts that more productive firms are larger and hire more talented employees, which gives rise to various predictions about how pre-entry experience, firm growth rates, and firm size influence the wages firms pay to their early hires. We find that beginning with the time of entry, larger firms consistently pay higher wages to their new hires. These are firms with greater survival prospects at the time of entry based on the pre-entry backgrounds of their founders and that grow at greater rates over time, both of which are predictive of the wages paid to new hires from the time of entry onward. Our findings suggest workers are allocated to firms according to their abilities, which can give rise to enduring firm capabilities.
Posted: March 5th, 2008 | Filed under: Research, Working Papers | Tags: Entrepreneurship, Human capital, Location choice, Performance, Regional migration, Social capital, Spinoffs | No Comments »
Michael S. Dahl and Olav Sorenson
We argue that social capital places strong constraints on an entrepreneur’s ability to found a firm in a region in which he or she does not have connections. We examine this thesis using comprehensive data on the Danish population and find evidence broadly consistent with this claim. Entrepreneurs tend to open businesses in regions in which they have deep roots (“home” regions). We further find that their ventures perform better (survive longer) when they locate in these home regions. The value of social capital moreover appears substantial, similar in magnitude to the value of having prior experience in the industry entered (i.e. human capital).
Posted: December 5th, 2007 | Filed under: Research, Working Papers | Tags: Growth, Methods, Performance | No Comments »
Toke Reichstein, Michael S. Dahl, Bernd Ebersberger and Morten B. Jensen
This paper explores the firm growth rate distribution in a Gibrat’s Law context. The aim is to provide an empirical exploration of the determinants of firm growth. The work is novel in two respects. First, rather than limiting the analysis to focus on the conditional mean growth level, we investigate the complete shape of the distribution. Second, we show that the differences in the firm growth rate process between large and small firms are highly circumstantial. That industry dynamics have a substantial influence on the relationship between firm size and firm growth. The data used includes more than 9000 Danish firms from manufacturing, services and construction. We provide robust evidence indicating that firm growth studies should be less obsessed with explaining means and instead look to other parts of the firm growth rate distribution.