Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Bergen, Department of Economics

No 6/19: Do Temporary Demand Shocks have Long-Term Effects for Startups?

Hans K. Hvide () and Tom G. Meling ()
Additional contact information
Hans K. Hvide: University of Bergen, Department of Economics, Postal: Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway
Tom G. Meling: University of Bergen, Department of Economics, Postal: Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway

Abstract: Using detailed procurement auctions and register data from Norway, we find that temporary demand shocks have long-term effects on startup outcomes. Startups that win a procurement auction are more than 20% larger in terms of sales and employment than startups that narrowly lose an auction, even several years after the contract work ends. For mature firms, we do not find long-term effects of auction wins. The persistent effects of temporary demand shocks for startups appear driven by learning-by-doing effects and by winning startups undertaking irreversible investments. The results point to the importance of path dependence in shaping the long-term outcomes of startups.

Keywords: Entrepreneurship; Path-dependency; Productivity; Startups

JEL-codes: D21; D24; G39; J23; L11; L25

91 pages, December 24, 2019

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