Understanding the size and profitability of firms: The role of a biological factor |
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Authors: | Luigi Guiso Aldo Rustichini |
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Affiliation: | 1. Einaudi Institute for Economics and Finance (EIEF) Fellow, Centre for Economic Policy Research (CEPR), Italy;2. Department of Economics, University of Minnesota, USA |
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Abstract: | In a large sample of entrepreneurs, 2D:4D (second-to-fourth digit) ratio and managerial performance are studied. Entrepreneurs with lower ratio manage larger firms, manage larger firms when acquire control and experience faster average growth. Firms run by high prenatal testosterone entrepreneurs have lower profitability as measured by return on assets and return on sales. Prenatal testosterone is correlated with elicited measures of entrepreneurial skills, like work effort and optimism and the latter are correlated with firm size. This evidence suggests entrepreneurial ability has a biological component and is consistent with models of the size distribution of firms based on entrepreneurial ability. |
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Keywords: | Firm size distribution Entrepreneurial success Digit ratio L26 L21 L25 D22 |
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