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How Do Cash Windfalls Affect Entrepreneurship? Evidence from the Spanish Christmas Lottery

Published online by Cambridge University Press:  04 June 2024

Vicente J. Bermejo ,
Miguel A. Ferreira ,
Daniel Wolfenzon  and
Rafael Zambrana Open the ORCID record for Rafael Zambrana [Opens in a new window]
Vicente J. Bermejo
Affiliation:
Ramon Llull University ESADE Business School [email protected]
Miguel A. Ferreira
Affiliation:
Universidade Nova de Lisboa Nova School of Business and Economics CEPR and ECGI [email protected]
Daniel Wolfenzon
Affiliation:
Columbia University Columbia Business School and NBER [email protected]
Rafael Zambrana*
Affiliation:
University of Notre Dame Mendoza College of Business
*
[email protected] (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

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We show cash windfalls affect the real economy by spurring entrepreneurship. We identify these effects using the Spanish Christmas Lottery, which provides a unique setting as prizes are geographically concentrated and distributed among thousands of households. We find higher start-up entry, job creation, and self-employment in winning regions. Consistent with a financial constraints channel, results are strongest in sectors relying on external finance and regions with limited credit access. Newly created firms are larger, more profitable, and survive longer. For existing firms, however, growth and profitability do not respond to lottery awards, but wages increase due to tighter labor markets.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 30
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2024. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We are grateful to Jarrad Harford (the editor) and an anonymous referee for their assistance in improving the manuscript through a highly constructive review process. We also thank Diana Bonfim, Laura Crespo, Joan Farre-Mensa, Xavier Freixas, Sergio Garcia, Pedro Gete, Jessica Jeffers, Gustavo Manso, William Mullins, Jose-Luis Peydro, Rafael Repullo, Martin Schmalz, Felipe Silva, Lea Stern, and Su Wang; participants at the 2019 Conference in Financial Economic Research-IDC Herzliya, 2020 Corporate Finance Webinar, 2018 Econometric Society European Winter Meeting, 2019 European Finance Association Annual Meeting, 2019 Financial Intermediation Research Society Conference, 2018 HEC Paris Workshop on Entrepreneurship, 2017 Mitsui Symposium on Comparative Corporate Governance and Globalization, 2018 Northern Finance Association Conference, 2019 Simposio de la Asociacion Espanola de Economia (SAEe), and 2019 Spanish Finance Forum; and seminar participants at CEMFI, ESADE Business School, London Business School, Nova School of Business and Economics, Pompeu Fabra University, University of Alicante, University of Notre Dame, University of Vienna, and University of Zurich for helpful comments. Bermejo acknowledges financial support from Banc Sabadell and the Spanish Ministry of Science, Innovation, and Universities under PGC2018-099700- A-100. Ferreira holds the BPI – Fundação “la Caixa” Chair in Responsible Finance, is an independent board member at BPI Asset Management, and acknowledges financial support from the Fundação para a Ciência e a Tecnologia. All errors are our own.

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