Democratizing Entry: Banking Deregulations, Financing Constraints, and Entrepreneurship

William R. Kerr; Ramana  Nanda

Article | Journal of Financial Economics | October 2009

Democratizing Entry: Banking Deregulations, Financing Constraints, and Entrepreneurship

Abstract

We examine entrepreneurship and creative destruction following US banking deregulations using Census Bureau data. US banking reforms brought about exceptional growth in both entrepreneurship and business closures. Most of the closures, however, were the new ventures themselves. Although we do find evidence for the standard story of creative destruction, the most pronounced impact was a massive increase in churning among new entrants. We argue that creative destruction requires many business failures along with the few great successes. The successes are very difficult to identify ex ante, which is why democratizing entry is an important trait of well-functioning capital markets.

Keywords: Entrepreneurship; Governing Rules, Regulations, and Reforms; Market Entry and Exit; Capital Markets; Banks and Banking; Growth and Development; Disruptive Innovation;

Format: Print

26 pages

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Citation:

Kerr, William R., and Ramana Nanda. "Democratizing Entry: Banking Deregulations, Financing Constraints, and Entrepreneurship." Journal of Financial Economics 94, no. 1 (October 2009): 124–149.

Case | HBS Case Collection | July 2019 (Revised May 2020)

AT&T, Retraining, and the Workforce of Tomorrow

William R. Kerr, Joseph B. Fuller and Carl Kreitzberg

By the late 2000s, rapid changes in the telecommunications industry forced AT&T’s management team to take on a task that CEO Randall Stephenson called the “biggest logistical challenge” they had ever seen: retraining 100,000 workers by 2020. In 2012, internal company analyses found that AT&T’s workforce would lack the skills it needed to fulfill emerging job requirements. AT&T responded by creating “Workforce 2020,” a company-wide initiative that sought to address potential skill shortfalls. The initiative aimed to transform AT&T’s workforce by implementing multiple changes, such as redesigning job roles, developing new educational curricula with Udacity, and incentivizing employees to retrain themselves for high-demand careers. Some gave high praise to the “Workforce 2020” model, going so far as to call it a new “social contract” between employers and employees. Others worried that the new program was systematically disadvantaging specific groups of workers. In 2018, AT&T rebranded Workforce 2020 to “Future Ready,” signaling the company’s commitment to retraining its workforce beyond 2020.

Keywords: AT＆T; workforce; skills; future of work; telecommunications; Unions; technological change; layoffs; MOOCS; Strategic Planning; Employees; Training; Competency and Skills; Labor; Learning; Labor Unions; Technology Adoption; Talent and Talent Management; Telecommunications Industry; Communications Industry; United States;

Citation:

Kerr, William R., Joseph B. Fuller, and Carl Kreitzberg. "AT&T, Retraining, and the Workforce of Tomorrow." Harvard Business School Case 820-017, July 2019. (Revised May 2020.) View Details

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We use individual-level data to shed light on the evolution of founder-CEO compensation in venture capital-backed startups. We document that having a tangible, marketable product is a fundamental milestone in CEOs' compensation contracts, marking the point at which liquid cash compensation begins to increase significantly – well before a liquidity event. “Product market fit” also coincides with key human capital in the startup becoming more replaceable, marking an apparent transition in the firm's lifecycle from differentiation to standardization. Although substantial increases in cash compensation for founder-CEOs in response to milestones improves the certainty equivalent of attempting entrepreneurship relative to flat pay, low cash compensation in the very early years can still deter entrepreneurship for potential entrants. We characterize the types of individuals most likely to be impacted by this constraint and hence those whose ideas are unlikely to be commercialized through VC-backed entrepreneurship.

Although late-stage venture capital (VC) activity did not change dramatically in the first two months after the COVID-19 pandemic reached the U.S., early-stage VC activity declined by 38%. The particular sensitivity of early-stage VC investment to market conditions—which we show to be common across recessions spanning four decades from 1976 to 2017—raises questions about the pro-cyclicality of VC and its implications for innovation, especially in light of the common narrative that VC is relatively insulated from public markets. We find that the implications for innovation are not benign: innovation conducted by VC-backed firms in recessions is less highly cited, less original, less general, and less closely related to fundamental science. These effects are more pronounced for startups financed by early-stage venture funds. Given the important role that VC plays in financing breakthrough innovations in the economy, our findings have implications for the broader discussion on the nature of innovation across business cycles.

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Democratizing Entry: Banking Deregulations, Financing Constraints, and Entrepreneurship

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