The effect of the innovative environment on exit of entrepreneurial firms (original) (raw)
Related papers
2002
In this research, we seek to advance the understanding of heterogeneity in entrant survival rates. We suggest that the innovative environment at the time of entry can explain the variation in likelihood of survival for entrants. We conceptualize innovative environment in terms of two dimensions: the technological regime operating in a specific industry at the time of entry, and the technology intensity in the specific industry, and argue that the coexistence of certain states of these two dimensions of the innovative environment is important in explaining differences in entrant survival rates. Further, we propose that start−up size differentially impacts the relationship between the innovative environment at the time of entry and entrant survival. Empirical tests done on a unique longitudinal dataset of 3431 firms in 33 product innovations spanning over 80 years reveal support for the contingency hypothesis. Theoretical and practical implications of the findings are discussed.
2003
In this research, we seek to advance the understanding of heterogeneity in entrant survival rates. We suggest that the innovative environment at the time of entry can explain the variation in likelihood of survival for entrants. We conceptualize innovative environment in terms of two dimensions: the technological regime operating in a specific industry at the time of entry, and the technology intensity in the specific industry, and argue that the coexistence of certain states of these two dimensions of the innovative environment is important in explaining differences in entrant survival rates. Further, we propose that start-up size differentially impacts the relationship between the innovative environment at the time of entry and entrant survival. Empirical tests done on a unique longitudinal dataset of 3431 firms in 33 product innovations spanning over 80 years reveal support for the contingency hypothesis. Theoretical and practical implications of the findings are discussed. The "When, Where, and How" of Entrant Survival: The Effects of Knowledge Regime, Technological Intensity and Start-Up Size on New Venture Survival Market evolution, or the process whereby population characteristics of markets and their competitive dynamics change over time, is triggered by entry of new firms that introduce innovations (Schumpeter 1934; see Chandy and Tellis 1998). Acting as agents of change, these entrepreneurial entrants catalyze market transformations through their innovative activities (Lambkin and Day 1989; Utterback and Abernathy 1975). These evolutionary processes that are set in motion by new firm entry lead to changing sources of competitive advantage (Lambkin and Day 1989; Gort and Klepper 1982). Accordingly, firms' market performances are impacted (Kotler 1984; Sha nkar, Carpenter, and Krishnamurthi 1999). However, whether an entrant has a dis-equilibrating effect on the market (Boudreaux and Holcombe 1989) depends crucially on whether it is able to overcome early year vulnerability to failure associated with liability of newness (Stinchcombe 1965). Therefore, the determinants of new venture survival are important since survival is a first order condition for whether new entrants are able to impact the market place through bringing in new knowledge and innovations. However, marketing's contribution to our understanding of new venture survival is limited (Robinson and Min 2001; Kalyanaram, Robinson, and Urban 1995). This paper proposes that the specific pattern of new venture survival can be explained as the outcome of different innovative environments, defined as the particular combination of technological opportunities and properties of the knowledge base underlying innovative advantage in an industry at the time of entry. While order of entry literature suggests that entrant performance may be entry time-variant (Robinson and Min 2001; Golder and Tellis 1993; Lilien and Yoon 1990), it has also been noted that the extent of scientific know-how in an industry
Does innovativeness reduce startup survival rates?
Journal of Business Venturing, 2014
There are two competing hypotheses explaining how innovativeness influences the survival of startups: On the one hand, innovativeness is argued to foster survival-enhancing attributes (e.g., market power and cost efficiency) and capabilities (e.g., absorptive capacity). On the other hand, an innovative startup faces (and bears the associated risks of) liabilities of newness and smallness that exceed those of its non-innovative counterparts. The available empirical literature addressing this theoretical tension mostly supports the former hypothesis; we suggest that this finding is, in part, driven by the common practice of employing an ex post measure that already embodies a degree of success in innovativeness. We use an ex ante measure and find that a startup's innovativeness is negatively associated with its subsequent survival. We also find that entrepreneurs' greater appetite for risk magnifies this negative association. These findings imply that pursuing innovations is not necessarily associated with survival during the early stages of firm development and entails a more complicated start-up process.
Born to flip. Exit decisions of entrepreneurial firms in high-tech and low-tech industries
Journal of Evolutionary Economics, 2011
This paper examines the way that the exit behavior of entrepreneurial firms is shaped by their innovative capabilities, and the technology environment in which they operate. We distinguish between exit by closing down activity and exit by merger or acquisition (M&A). Using a large sample of Dutch manufacturing firms, we explore the relationship between firm exit, age and innovative capabilities, in high and low innovation intensive industries. We find that for entrepreneurial firms, innovation may go some way towards compensating for the liability of newness, but also makes them more attractive M&A targets. More specifically, entrepreneurial firms in high-tech industries do not seem to improve their chances of survival by innovating; when technological change is rapid, innovation, especially in products, is necessary to participate in the innovation race in an industry, but is not sufficient to guarantee survival. In contrast, in low-tech industries, process innovation is a critical condition for the survival of entrepreneurial firms. In this context, entrepreneurial firms that are able to bring new product ideas, introducing ‘exceptional’ variations into a stable environment, are most likely to exit by M&A, thereby transferring their knowledge and capabilities to the incumbent firms.
2011
© The Author(s) 2011. This article is published with open access at Springerlink.com Abstract This paper examines the way that the exit behavior of entrepreneur-ial firms is shaped by their innovative capabilities, and the technology envi-ronment in which they operate. We distinguish between exit by closing down activity and exit by merger or acquisition (M&A). Using a large sample of Dutch manufacturing firms, we explore the relationship between firm exit, age and innovative capabilities, in high and low innovation intensive industries. We find that for entrepreneurial firms, innovation may go some way towards compensating for the liability of newness, but also makes them more attractive M&A targets. More specifically, entrepreneurial firms in high-tech industries do not seem to improve their chances of survival by innovating; when tech-nological change is rapid, innovation, especially in products, is necessary to participate in the innovation race in an industry, but is not suffic...
Innovation Premium and the Survival of Entrepreneurial Firms
This paper examines the difference in survival probability between innovators and non-innovators (the 'innovation premium'), for different types of firms and technological environments. In particular, we compared the innovation premiums for high-tech and low-tech manufacturing to discover whether innovation plays a different role as a strategy for survival depending on the technological environment. In addition, we analysed whether different patterns emerge when we contrast entrepreneurial firms and established firms. We estimated survival probabilities with an approach based on TPM, using data from the Business Register of the population of manufacturing firms in the Netherlands and the CIS-2. Among established firms, the highest premium in survival (whether an innovator or not) lies in being active in a high-tech sector. Thus, to increase survival probability, innovation must be complemented by firm specific organisational and commercial capabilities. For entrepreneurial firms it is crucial to either be an innovator or at least to be active in a high-tech sector; in a low-tech sector, innovative activity is a "matter of life or death". Indeed, innovation increases the survival probability of entrepreneurial firms in low-tech sectors by 58 per cent compared to non-innovative firms. This is the highest innovation premium amongst all the categories of firms and sectors studied.
Survivor: The role of innovation in firms’ survival
Research Policy, 2006
This paper explores the relationship between innovation and the survival of manufacturing firms in the Netherlands. The determinants of the survival probability of a firm, traditionally identified in the size and age of a firm, are extended to include the ability of a firm to introduce an innovation in the market. The empirical analysis combines economic and demographic data from the Business Register of the population of firms active in the Netherlands with data on innovation derived from the second Community Innovation Survey. The survival probability of a firm is estimated by using a non-parametric approach: Transition Probability Matrices were calculating over different time periods. We observe that, in general, innovation has a positive and significant effect on firms' survival that increases as time lengthens. Furthermore, our results confirm that small and young firms are those most exposed to the risk of exit, but at the same time those that benefit most of innovation to survive in the market, especially in the longer term.
Firm Survival and Innovation: Knowledge Context Matters!
2018
The aim of this paper is to explore the differential effect of innovation on firm survival. We consider the effect of product, process and organisational innovations controlling for the role of the knowledge context and of firm absorptive capacity. At the end of the 1990s, an ad hoc survey was performed on a representative sample of manufacturing firms located in a NUTS3 area of southern Italy, and information on firm survival has been collected for 15 years. A multivariate endogenous probit model is applied to simultaneously analyse the determinants of innovation and of subsequent firm survival. Our estimates confirm that process innovation is a determinant of firm survival followed by product innovation, whereas evidence of a more novel type suggests that organisational innovation plays only a weak role. Entrepreneurial general and specific human capital exerts no direct beneficial effect on firm duration. The requirement of proper technological knowledge from the local university...
A RESOURCE-BASED VIEW OF NEW FIRM SURVIVAL: NEW PERSPECTIVES ON THE ROLE OF INDUSTRY AND EXIT ROUTE
Journal of Developmental Entrepreneurship, 2013
This article explores factors affecting the survival and exit routes of new firms created in 2004 using data from the Kauffman Firm Survey. We draw upon the Resource-Based View to test several hypotheses regarding the impact of both tangible and intangible resources on new firm survival in both service and non-service firms. We also distinguish between two types of exit: closures (permanently stopped operations) and mergers or acquisitions. Our results reveal that, although service and nonservice firms may differ in terms of industry structure, the fundamental resources that contribute to their survival are the same: education, work and life experience and adequate levels of startup financial capital. In spite of these similarities, our results did reveal industry differences in terms of exit. We found serial entrepreneurs in the service sector were more likely to exit through merger or acquisition. Conversely, intellectual property decreased the likelihood of exit through merger or acquisition for non-service firms. Thus, our findings revealed a link between human capital, industry and exit route for this sample of new firms.