Sampsa Samila

Venture Capital, Entrepreneurship, and Economic Growth

Using a panel of U.S. metropolitan areas, we find that increases in the supply of venture capital positively affect firm starts, employment, and aggregate income. Our results remain robust to a variety of specifications, including ones that address endogeneity. The estimated magnitudes imply that venture capital stimulates the creation of more firms than it funds, which appears consistent with two mechanisms: First, would-be entrepreneurs anticipating financing needs more likely start firms when the supply of capital expands. Second, funded companies may transfer know-how to their employees, thereby enabling spin-offs, and may encourage others to become entrepreneurs through demonstration effects.

Noncompete Covenants: Incentives to Innovate or Impediments to Growth

We find that the enforcement of noncompete clauses significantly impedes entrepreneurship and employment growth. Based on a panel of metropolitan areas in the United States from 1993 to 2002, our results indicate that, relative to states that enforce noncompete covenants, an increase in the local supply of venture capital in states that restrict the scope of these agreements has significantly stronger positive effects on (i) the number of patents, (ii) the number of firm starts, and (iii) employment. We address potential endogeneity in the supply of venture capital by using endowment returns as an instrumental variable. Our results point to a strong interaction between financial intermediation and the legal regime in promoting entrepreneurship and economic growth. This paper was accepted by Gerard P. Cachon, entrepreneurship and innovation.

Venture Capital as a Catalyst to Commercialization

We find that the public funding of academic research and venture capital have a complementary relationship in fostering innovation and the creation of new firms. Using panel data on metropolitan areas in the United States, from 1993 to 2002, our analyses reveal that the positive relationships between government research grants to universities and research institutes and the rates of patenting and firm formation in a region become more pronounced as the supply of venture capital in that region increases. Our results remain robust to estimation with an instrumental variable to address potential endogeneity in the provision of venture capital. Consistent with perspectives that emphasize the importance of an innovation ecosystem, our findings point to a strong interaction between private financial intermediation and public research funding in promoting entrepreneurship and innovation.

Venture Capital, Entrepreneurship, and Regional Economic Growth

Using a panel of U.S. metropolitan areas from 1993 to 2002, we find that an increase in the local supply of venture capital (VC) positively affects (i) the number of firm starts, (ii) employment, and (iii) aggregate income. Our results remain robust to a wide variety of specifications, including ones that address potential endogeneity in the supply of venture capital. The magnitudes of the effects, moreover, imply that venture capital stimulates the creation of more firms than it directly funds. That result appears consistent with either of two mechanisms: One, would-be entrepreneurs that anticipate a future need for financing more likely start firms when the supply of capital expands. Two, companies funded by venture capital may transfer tacit knowledge to their employees thereby enabling spinoffs, and may encourage both their own employees and others to become entrepreneurs through demonstration effects.

Trade Secrets Law and Mobility: Evidence from 'Inevitable Disclosure'

Professional mobility has profound importance for firm strategy, innovation, and productivity. Prior work on legal constraints on mobility has focused on non-compete covenants and patents. Here, we investigate the impact of the doctrine of inevitable disclosure in U.S. state-level trade secrets law on mobility. We find that state court rulings against inevitable disclosure are associated with mobility of university-educated workers being 9.7 percent higher and mobility of less educated workers being 3.6 percent lower. On the other hand, rulings in favor of inevitable disclosure are associated with 6.9 percent less mobility for university-educated workers and 8.8 percent less mobility for other workers. The disparity in the effects on mobility is consistent with degree-qualified workers having relatively more bargaining power vis-a-vis employers than less-educated workers. We further find that the results are stronger in states that enforce non-compete covenants weakly and among employees in managerial and sales positions. Our results have implications for the degree of knowledge spillovers between firms, and thus firm strategy and ultimately, the overall economy-wide rate of innovation and economic growth.

The Effect of Social Interaction on Economic Transactions: Evidence from Changes in Two Retail Formats

Examining changes in two different retail formats, we show that consumers alter their purchases depending on the retail environment. In both settings, the change in behavior coincides with a reduction in the interpersonal interaction required to complete a transaction. As such, we contend that the format changes reduced a “social friction” that would otherwise inhibit consumers due to an implicit cost associated with ordering certain items in social settings. This paper was accepted by Pradeep Chintagunta, marketing .

Networks, Institutions, and Encounters: Information Exchange in Early-Modern Markets

Emerging economies are characterized by the absence of robust legal infrastructures. In these contexts, social networks in the forms of merchant coalitions, kin-groups, and business groups have been shown to have effectively substituted for stable legal institutions by creating systems of reputation and social sanctioning that reduce contract uncertainty and thereby foster trade and commerce. For this reason, repeated interactions and cohesive groups are understood to play a crucial role in early economic development. One-shot market interactions, in contrast, have been linked to the presence of modern legal institutions. We use archival data from an emerging global trade network that developed over the seventeenth, eighteenth, and nineteenth centuries to evaluate whether a strong institutional context is necessary for transient, one-shot exchange. We consider patterns of information exchange in the network and find that, contrary expectations there is (1) little evidence of reputation mechanisms, coalition formation, or reciprocity, (2) transient exchange is in evidence, (3) transient exchange predates strong formal governance, and (4) the increasing institutional strength of formal governance is associated with a decrease in transient exchange. We argue that transient exchange in this network of trade was encouraged by a pattern of interaction imposed upon traders by the factory system.

Colonial Institutions and Trade Patterns

Abstract This paper uses the case of the English East India Company to consider the impact of colonialization on patterns of trade. The East India Company went through a commercial and a colonial period in Asia and therefore provides a rare case in which fixed national effects are held constant while the degree of colonialism varies. We use this variation to consider the impact of colonial institutions on the degree of concentration in overseas trade. We find that the onset of colonialism is linked to increasing inequality in the distribution of traffic across ports. This finding is significant because of the relationship between overseas trade and the potential for long-term economic development: the development trajectories of the individual ports were likely to have been affected by these different rates of trade. Our findings also highlight how the negotiation between political and commercial goals in early modern trade and imperialism produced different macro-structural outcomes for global trade patterns.

The Persistent Effect of Initial Success: Evidence from Venture Capital

We examined persistence in the performance of venture capital (VC) firms at the level of individual investments underlying fund returns. We found that, while initial success strongly predicted long...

Retail Format as a Barrier to Entry

“Barriers to entry” form a key construct in strategy scholarship and pedagogy. However, limited empirical evidence exists for many putative barriers. For example, although considerable evidence suggests that managers perceive the existence of significant distribution-related barriers to entry, there is virtually no empirical evidence for distribution’s actual role as an entry barrier. We exploit a field experiment conducted by Systembolaget, the Swedish government alcohol retail monopoly, and examine the role of changes in distribution through a randomized change from counter-service to self-service stores. We find that self-service stores sell much higher product variety and new entrants do better in self-service stores. The increase in variety is comparable to the change from catalog sales to internet.