2020 Theses Doctoral

A Thesis on Entrepreneurship, Employment, and Investment Decisions

Cen, Xiao

This article investigates the incentive to pursue entrepreneurship and the impact of entrepreneurial activities on employment and investment decisions. Chapter 1 studies how household wealth affects entrepreneurial career choices, based on U.S. Census individual-level employment data and geographic information system (GIS) flood data. A regression discontinuity analysis shows that residents who were actually inundated are 7% less prone to entrepreneurial careers relative to their neighbors just outside the boundary, all within a 0.1-mile-wide band. The effect is more profound in the propensity to become startup employees than founders, attributed to a lowered self-insurance capacity against employment risks due to wealth damage. Chapter 2 investigates how the release of a mobile trading application affects retail investor and mutual fund investment. “Going mobile” raises investor attention and trading volume through aggravating behavioral biases. The shock boosts flow volatility, increases investor flow sensitivity to short-term fund returns and market sentiment, and makes fund performance suffer from heightened liquidity costs. Chapter 3 documents how intensified competition for talent from hedge fund startups affects mutual fund returns around a regulatory shock that stimulated hedge fund entry in China. The regulation leads to a decline in the performance in affected mutual funds, concentrated after managerial turnovers. The finding illustrates the adverse effect of business formation on established firms through stealing their talent and impair their investment skills.