(2025). Employee-Friendly but Costly Workplace Practices? Evidence from Paid Family Leave Policies and Venture Capital InvestmentsMax Planck Institute for Innovation & Competition Research Paper No. 25-13.
This study investigates how paid family leave (PFL) policies—an institutional intervention—affect venture capital (VC) investment in VC-backed startups. Leveraging the staggered implementation of PFL across U.S. states, we find that their introduction is associated with a decline in VC investment, particularly among startups with a higher proportion of female employees. This effect appears to be driven by increased employee departures and reduced innovation, suggesting that workforce disruptions induced by PFL impose organizational burdens that weaken startup performance and ultimately deter investor interest. Our findings contribute to strategy and entrepreneurship research by demonstrating how institutional shocks can destabilize human capital advantages, which are both critical and fragile in early-stage firms, and by highlighting the boundary conditions of these advantages under institutional constraints.
