Nice Albeit not Necessarily Very Smart: Productivity and the Cognitive and Noncognitive Ability of the Entrepreneur

How do the abilities of entrepreneurs correlate with how successful they are as business owners? We provide population-wide direct evidence of how the abilities of the entrepreneur translate to firm productivity. Specifically, the emphasis is on the role of cognitive and noncognitive skills on the productivity of entrepreneurs and their firms. This is done by using mandatory conscription tests conducted during the years 1986 until 1996 for the male population in Sweden. We combine the scores from the written tests as well as overall scores obtained from an interview with a psychologist to have nearly exhaustive population-wide and representative measures of cognitive and noncognitive abilities. The test scores from these cohorts can be combined with longitudinal microdata which come from individual- and firm-level registers. The empirical setting includes information from 2005 to 2019 on the productivity of the entrepreneurs’ firm as well as the income generated from the firm. We show that productive entrepreneurs are nice although they are not necessarily very smart. There is no evidence of complementarity between cognitive and noncognitive ability. We find that cognitive ability matters in the highest quantiles of productivity distribution and high-technology and knowledge-intensive sectors. On the other hand, noncognitive ability matters across the productivity distribution even though monotonically increasing extent.