Entrepreneurial reluctance: Talent and firm creation in China (with Chong-en Bai Hongbin Li and Xin Wang)
Abstract: The theoretical literature has long noted that talent can be used in both the entrepreneurial and non-entrepreneurial sectors, and its allocation depends on the reward restructure. We test this insight by linking administrative college admissions data for 1.8 million individuals with the universe of firm registration records in China. The data reveal that most of the variation in firm creation is from within colleges. Given the same college, we find that individuals with higher college entrance exam scores – the most important measure of talent in this context – are less likely to create firms, but, when they do, their firms are more successful than that of their lower-score counterparts. Additional survey data suggest that higher-score individuals enjoy higher wages and are more likely to join the state sector. Moreover, the score-to-firm creation relationship varies greatly across industry, according to the size of the state sector. These findings support the interpretation that the score is positively associated with entrepreneurial ability but that higher-score individuals are attracted away by other sectors, particularly the state sector.
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