Born Small, Staying Small: Generative Artificial Intelligence and the Organization of New Firms

Abstract How does generative artificial intelligence affect the organization of new firms? I study its diffusion by combining its post-2022 emergence with differences in exposure to large language models across UK industries. I find no statistically significant change in firm entry, but a shift in organization at founding: from 2025 onward, a one-standard-deviation increase in exposure was associated with 2.1 percent fewer founding directors and a 14.3 percent decline in the share of firms with three or more directors. These differences persisted six and twelve months after incorporation. The results show that generative AI exposure can reshape how firms are organized without a statistically detectable increase in firm creation.