Student Quality, College Selectivity and the Birth of Firms

• Development Workshop

Date and Location

Tuesday, May 7, 2019, 4:10 PM - 5:30 PM
ARE Library Conference Room, 4101 Social Sciences and Humanities

Abstract

Most of the existing studies on entrepreneurship rely on survey data, which makes it difficult to link the ex ante entry decision with ex post firm performance. In this paper, we link three major Chinese administrative datasets – individual records in the National College Entrance Exam, college admission records, and the information on owners of all Chinese firms – to study how student quality and college selectivity affect the probability of becoming firm owners and the long-run success of the firms. These datasets provide us rich information for 12 million individuals in their mid-30s, who have established around 1.1 million firms. We find that (1) given college selectivity, better students (those with a higher exam score) are less likely to become firm owners, even though their firms would be more successful in the long run, and (2) given student quality, better colleges are more likely to produce firm owners while their influence on long-run success is nuanced. In light of several existing theories, we show that these patterns are most consistent with the importance of outside option and entry barrier in shaping occupational choices and provide further evidence to support this interpretation.