Do Temporary Demand Shocks Have Long-Term Effects for Startups?

Hans K Hvide; Tom G Meling

doi:10.1093/rfs/hhac028

Do Temporary Demand Shocks Have Long-Term Effects for Startups?

Hans K Hvide^* (Corresponding Author), Tom G Meling

^*Corresponding author for this work

Economics

Research output: Contribution to journal › Article › peer-review

Abstract

Using procurement auctions and register data, we find that temporary demand shocks have long-term effects for startups. Startups that win a procurement auction have 20\\\%\ higher sales and employment and are more profitable than startups that narrowly lose an auction, even several years after the contract work has ended. There are no such effects for mature firms. The effects for startups are large: about 50\\\%\ of the contract value is transmitted into long-term sales. Our analysis suggests learning-by-doing as a plausible mechanism. Overall, our results point to the importance of path dependence in shaping the long-term outcomes of startups.

Original language	English
Pages (from-to)	317-350
Journal	The Review of Financial Studies
Volume	36
Issue number	1
Early online date	19 May 2022
DOIs	https://doi.org/10.1093/rfs/hhac028
Publication status	Published - Jan 2023

Keywords

D24 - Production
Cost
Capital
Total factor
capacity
diversification
firm performance
pricing
market

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10.1093/rfs/hhac028Licence: CC BY-NC

Hvide_etal_RFS_Temporary_Demand_Shocks_AAM
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https://doi.org/10.1093/rfs/hhac028

Cite this

@article{bd44425debb842cba5e6df0977c554fd,

title = "Do Temporary Demand Shocks Have Long-Term Effects for Startups?",

abstract = "Using procurement auctions and register data, we find that temporary demand shocks have long-term effects for startups. Startups that win a procurement auction have 20\\\%\ higher sales and employment and are more profitable than startups that narrowly lose an auction, even several years after the contract work has ended. There are no such effects for mature firms. The effects for startups are large: about 50\\\%\ of the contract value is transmitted into long-term sales. Our analysis suggests learning-by-doing as a plausible mechanism. Overall, our results point to the importance of path dependence in shaping the long-term outcomes of startups.",

keywords = "D24 - Production, Cost, Capital, Total factor, capacity, diversification, firm performance, pricing, market",

author = "Hvide, {Hans K} and Meling, {Tom G}",

note = "Acknowledgement Thanks to Philippe Aghion, Shai Bernstein, Nick Bloom, Ben Jones, Vishal Kamat, Gabriel Kreindler, Eirik Kristiansen, Ed Lazear, Magne Mogstad, Martin Schmalz, Bradley Setzler, and seminar audiences for helpful comments. Thanks to Lene Gundersen and Rannveig Huus Meling for excellent research assistance and to the Norwegian Public Roads Administration, in particular Jacob Sonne, for providing data access. We are grateful to Tarun Ramadorai (the editor) and two anonymous referees for very helpful comments. Hvide is also affiliated with the University of Aberdeen and CEPR. Supplementary data can be found on The Review of Financial Studies web site.",

year = "2023",

month = jan,

doi = "10.1093/rfs/hhac028",

language = "English",

volume = "36",

pages = "317--350",

journal = "The Review of Financial Studies",

issn = "0893-9454",