Entrepreneurial Reluctance: Talent and Firm Creation in China

Abstract This paper examines the correlation between cognitive ability and firm creation. Drawing on administrative college admission data and firm registration records in China, we investigate who had created firms by their mid-thirties. We find a clear pattern of entrepreneurial reluctance: given the same backgrounds, individuals with higher college entrance exam scores are less likely to create firms. Through an exploration of firm performance, alternative career trajectories and variations across regions, we propose an explanation: the ability represented by exam scores is useful across occupations, yet higher-scoring individuals are attracted to waged jobs, particularly those of the state sector.