Learning from Feedback: Evidence from New Ventures

Sabrina T. Howell

NBER Working Paper No. 23874
Issued in September 2017, Revised in January 2018
NBER Program(s):Corporate Finance, Industrial Organization, Productivity, Innovation, and Entrepreneurship

This paper explores how new venture competitions are helpful to entrepreneurs. In a regression discontinuity design using data from 87 competitions in 17 U.S. states, I show that winning is useful. While cash awards matter, winning is independently valuable in ways inconsistent with certification. Competitions instead seem to facilitate learning. I isolate learning by comparing lower and higher ranked non-winners across competitions in which they did and did not observe their standing. There is an economically large effect of negative feedback on venture abandonment. Cross-sectional variation suggests that founders treat their ventures as real options and are Bayesian updaters.

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Document Object Identifier (DOI): 10.3386/w23874

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