AI as "Co-founder": GenAI for Entrepreneurship

TL;DR

This study examines how the release of ChatGPT in 2022 acted as a shock that increased small firm creation in China, especially among AI-related and first-time entrepreneurs, highlighting GenAI's role in fostering competition.

Contribution

It provides empirical evidence that GenAI significantly boosts small firm formation and shifts entrepreneurial activity, especially among AI-related and first-time entrepreneurs, in China.

Findings

Small firms' entry increased by 6.0% nationally due to GenAI.

Large-firm entry declined, indicating a shift toward leaner startups.

Effects were strongest among AI-related, less financed, and first-time entrepreneurs.

Abstract

This paper studies whether, how, and for whom generative artificial intelligence (GenAI) facilitates firm creation. Our identification strategy exploits the November 2022 release of ChatGPT as a global shock that lowered start-up costs and leverages variations across geo-coded grids with differential pre-existing AI-specific human capital. Using high-resolution and universal data on Chinese firm registrations by the end of 2024, we find that grids with stronger AI-specific human capital experienced a sharp surge in new firm formation$\unicode{x2013}$driven entirely by small firms, contributing to 6.0% of overall national firm entry. Large-firm entry declines, consistent with a shift toward leaner ventures. New firms are smaller in capital, shareholder number, and founding team size, especially among small firms. The effects are strongest among firms with potential AI applications, weaker financing needs, and among first-time entrepreneurs. Overall, our results highlight that GenAI serves as a pro-competitive force by disproportionately boosting small-firm entry.