The value of AI on entrepreneurship: evidence from the European Union

Purpose This study explores the impact of artificial intelligence (AI) investments on entrepreneurship, focusing on their influence on firm revenue growth across 26 European countries from 2012 to 2023. The research aims to uncover the dynamics of AI investment, particularly its short-term challenges and long-term benefits and to examine the critical interplay between AI adoption and R&D innovation strategies. Design/methodology/approach The analysis uses an unbalanced panel dataset of 1,479 firms, applying the Cameron et al. (2011) multi-way clustering (CGM) estimation technique to account for heteroscedasticity and cross-sectional dependence. Robustness tests include alternative AI proxies and instrumental variable (2SLS-IV) regression to mitigate potential endogeneity issues. Findings The results reveal a U-shaped relationship between AI investments and revenue growth, indicating that initial AI adoption may hinder revenue growth due to high upfront costs or inefficiencies. However, significant long-term revenue benefits emerge as firms gain experience with AI. Additionally, integrating AI with innovation strategies substantially enhances revenue growth, highlighting that standalone AI investments are insufficient for achieving entrepreneurial success. Originality/value This study contributes to the literature by providing empirical evidence on the dual-phase impact of AI investments on firm performance and emphasising the strategic importance of aligning AI adoption with innovation efforts. The findings offer actionable insights for policymakers and business leaders aiming to leverage AI for sustained entrepreneurial growth.