Research and teaching
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David M. Waguespack and Olav Sorenson

Categorization processes are generally treated as consistent mappings of the underlying characteristics that they group. Yet, in many cases, the identities of actors influence these processes. When identity matters, high status actors often obtain more favorable classifications. We examine these processes in the context of the Motion Picture Association of America’s parental guidance classifications of movies (G, PG, R, NC-17). We find that, conditional on a given level of content, films distributed by MPAA members, and those that involve more central producers and directors, receive more lenient classifications than those carried by independent distributors and involving more peripheral personnel. Conversely, and again conditional on content, films involving directors with a history of producing R rated features receive more restrictive ratings. We discuss the mechanisms that might account for these effects. Regardless of the mechanism, however, since ratings influence revenue and consequently profitability, the movie certification system in the United States places independent distributors and peripheral individuals at a disadvantage relative to their larger and more central rivals.

Organization Science, 22 (2011): 541-553

Ratings data and do files

Sampsa Samila and Olav Sorenson

We find that the enforcement of non-compete clauses significantly impedes entrepreneurship and regional growth. Based on a panel of metropolitan areas in the United States from 1993 to 2002, our results indicate that, relative to regions in states that enforce non-compete covenants, an increase in the local supply of venture capital in states that restrict them has significantly stronger positive effects on (i) the number of patents, (ii) the number of firm starts, and (iii) employment. We address potential endogeneity issues in the supply of venture capital by using endowment returns as an instrumental variable. Our results point to a strong interaction between financial intermediation and the legal regime in promoting entrepreneurship and growth.

Management Science, 57 (2011): 425-438

Sampsa Samila and Olav Sorenson

Using a panel of U.S. metropolitan areas from 1993 to 2002, we find that an increase in the local supply of venture capital (VC) positively affects (i) the number of firm starts, (ii) employment, and (iii) aggregate income. Our results remain robust to a wide variety of specifications, including ones that address potential endogeneity in the supply of venture capital. The magnitudes of the effects, moreover, imply that venture capital stimulates the creation of more firms than it directly funds. That result appears consistent with either of two mechanisms: One, would-be entrepreneurs that anticipate a future need for financing more likely start firms when the supply of capital expands. Two, companies funded by venture capital may transfer tacit knowledge to their employees thereby enabling spinoffs, and may encourage both their own employees and others to become entrepreneurs through demonstration effects.

Review of Economics and Statistics, 93 (2011): 338-349