Young Innovative Companies

Title: Young Innovative Companies

Abstract: The financing of start-ups is subject to various forms of market failures, and governments use a variety of instruments to support new ventures, especially when it comes to their R&D endeavors. While an important number of studies have examined the effect of R&D subsidies and debt-support programs, one type of instrument that has been overlooked is adjusting the cost of R&D labor, known to be considerable for young innovative companies. In this paper, we study the impact of exogenous sharp variations in the cost of R&D labor on various start-up performance outcomes, with an emphasis on innovation outcomes and access to VC funding. To do so, we exploit (1) the features and (2) the reformation of the French Jeune Entreprise Innovante (JEI) scheme, which exempts young innovative companies from paying social security contributions for their R&D personnel, hence providing an ideal set-up for causal empirical analysis.