Growth paths and survival chances: an application of Gambler's Ruin theory
TL;DR: In this paper, the authors argue that new firm performance is best modelled as a random walk process, but that survival is nonrandom and depends primarily on the stock of accumulated resources.
About: This article is published in Journal of Business Venturing.The article was published on 2013-09-01 and is currently open access. It has received 227 citations till now. The article focuses on the topics: Gambler's ruin.
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TL;DR: In this article, the authors argue that despite an almost universally accepted belief outside academia that entrepreneurial activity is a positive driving force in the economy, the accumulated evidence remains largely inconclusive.
Abstract: Despite an almost universally accepted belief outside academia that entrepreneurial activity is a positive driving force in the economy, the accumulated evidence remains largely inconclusive. This article positions the increased interest in entrepreneurship since the 1980s within its historical context and highlights the significant methodological problems with its analysis. Taking these problems into account it reevaluates the performance of entrepreneurial firms in terms of innovation, job creation, economic growth, productivity growth, and happiness to show how both positive and negative interpretations can emerge. A pattern of increasingly positive interpretation is observed as one moves from analysis to policy. To address this bias, the article suggests the single category “entrepreneurial firms” be broken up along a continuum from the large number of economically marginal, undersized, poor performance enterprises to the small number of high performance “gazelles” that drive most positive impact on the economy. This would allow a more realistic evaluation of the impact of entrepreneurs by avoiding a composition fallacy that assigns the benefits of entrepreneurship to the average firm.
291 citations
Cites background from "Growth paths and survival chances: ..."
...…to compete on par with incumbents (~10 years); growth is rarely persistent (Holzl, 2013) and is approximately as persistent as a random coin toss (Coad et al, 2013); adjustment costs are very high (and penalise large scale entry and rapid post-entry growth); and as firms get both older and…...
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...Recognizing that the median entrepreneurial start-up is likely to be closer to a muppet than a gazelle also helps explain a number of stylized facts in industrial dynamics: market entry is common (particularly for smaller firms) despite low survival rates and the high positive correlation between entry and exit (suggesting it drives churn rather than growth); growth is difficult and it can take a long time for entrants to compete on par with incumbents ( 10 years); growth is rarely persistent (Ho lzl, 2013) and is approximately as persistent as a random coin toss (Coad et al., 2013); adjustment costs are high (and penalize large scale entry and rapid postentry growth); and as firms get both older and larger their survival improves (Geroski, 1995; Stam, 2010)....
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TL;DR: In this paper, the authors use an ex ante measure and find that a startup's innovativeness is negatively associated with its subsequent survival and also find that entrepreneurs' greater appetite for risk magnifies this negative association.
251 citations
Cites background from "Growth paths and survival chances: ..."
...…temporarily; Schumpeter, 1934) and their ability to escape competition (Nelson and Winter, 1982; Porter, 1980); (ii) reduces the costs of production (Cohen and Klepper, 1996a, 1996b; Nelson andWinter, 1982); (iii) creates dynamic capabilities for the SMEs (Eisenhardt and Martin, 2000; Teece et…...
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...…enhances firms' market power (Schumpeter, 1934), improve their ability to escape competition (Porter, 1980), reduce their production costs (Cohen and Klepper, 1996a, 1996b), improve dynamic capabilities (Teece et al., 1997), and lead to enhanced absorptive capacity (Zahra and George,…...
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TL;DR: A case-based approach is employed—fuzzy-set Qualitative Comparative Analysis (fsQCA)—to identify configurations of antecedent attributes of individuals in groups within samples, thereby revealing asymmetries and multiple entrepreneurial pathways that are otherwise hidden in the data.
193 citations
TL;DR: In this article, the authors investigate whether high-growth tends to persist and find that high growth firms had declining growth rates in the previous 3-year period, and their probability of repeating high growth rates was very low.
Abstract: Most firms do not grow, and a small number of high-growth firms seem to create most new jobs. These firms have therefore received increasing attention among policymakers. The question is whether high-growth tends to persist? We investigate this question using firm-level data from Sweden during 1997–2008. We find that high-growth firms had declining growth rates in the previous 3-year period, and their probability of repeating high growth rates was very low. Thus, these are essentially “one-hit wonders,” and it is doubtful whether policymakers can improve economic outcomes by targeting them.
177 citations
TL;DR: In this article, the authors used UK data to consider how small and medium-sized enterprises (SMEs) coped during the recent financial crisis and found that 4 in 10 SMEs experienced a fall in employment during the recession, and 5 in 10 experienced a falling in sales.
Abstract: This article uses UK data to consider how small and medium-sized enterprises (SMEs)1 coped during the recent financial crisis. This is important, as SMEs are major contributors to job creation, but are vulnerable to falling demand. It finds that 4 in 10 SMEs experienced a fall in employment during the recession, and 5 in 10 experienced a fall in sales. Within 12 months of the recession, three-quarters of entrepreneurs had a desire to grow. This suggests that while the immediate effects of recession are severe, entrepreneurs recover quite quickly. Importantly, the analysis found that recessionary growth is hugely concentrated among entrepreneurs with the highest human capital.
176 citations
Cites background from "Growth paths and survival chances: ..."
...…it is argued that the decision and outcome of growth for entrepreneurial firms could lie within the entrepreneur level (Westhead and Wright, 2011; Wright and Stiliani, 2012), or even be modelled as a random process (Coad et al., 2013), which may be less affected by macroeconomic conditions....
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...Moreover, it is argued that the decision and outcome of growth for entrepreneurial firms could lie within the entrepreneur level (Westhead and Wright, 2011; Wright and Stiliani, 2012), or even be modelled as a random process (Coad et al., 2013), which may be less affected by macroeconomic conditions....
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References
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01 Jan 1973
TL;DR: In this paper, a six-step framework for organizing and discussing multivariate data analysis techniques with flowcharts for each is presented, focusing on the use of each technique, rather than its mathematical derivation.
Abstract: Offers an applications-oriented approach to multivariate data analysis, focusing on the use of each technique, rather than its mathematical derivation. The text introduces a six-step framework for organizing and discussing techniques with flowcharts for each.
Well-suited for the non-statistician, this applications-oriented introduction to multivariate analysis focuses on the fundamental concepts that affect the use of specific techniques rather than the mathematical derivation of the technique. Provides an overview of several techniques and approaches that are available to analysts today - e.g., data warehousing and data mining, neural networks and resampling/bootstrapping. Chapters are organized to provide a practical, logical progression of the phases of analysis and to group similar types of techniques applicable to most situations.
Table of Contents
1. Introduction.
I. PREPARING FOR A MULTIVARIATE ANALYSIS.
2. Examining Your Data.
3. Factor Analysis.
II. DEPENDENCE TECHNIQUES.
4. Multiple Regression.
5. Multiple Discriminant Analysis and Logistic Regression.
6. Multivariate Analysis of Variance.
7. Conjoint Analysis.
8. Canonical Correlation Analysis.
III. INTERDEPENDENCE TECHNIQUES.
9. Cluster Analysis.
10. Multidimensional Scaling.
IV. ADVANCED AND EMERGING TECHNIQUES.
11. Structural Equation Modeling.
12. Emerging Techniques in Multivariate Analysis.
Appendix A: Applications of Multivariate Data Analysis.
Index.
37,124 citations
TL;DR: The dynamic capabilities framework as mentioned in this paper analyzes the sources and methods of wealth creation and capture by private enterprise firms operating in environments of rapid technological change, and suggests that private wealth creation in regimes of rapid technology change depends in large measure on honing intemal technological, organizational, and managerial processes inside the firm.
Abstract: The dynamic capabilities framework analyzes the sources and methods of wealth creation and capture by private enterprise firms operating in environments of rapid technological change. The competitive advantage of firms is seen as resting on distinctive processes (ways of coordinating and combining), shaped by the firm's (specific) asset positions (such as the firm's portfolio of difftcult-to- trade knowledge assets and complementary assets), and the evolution path(s) it has aflopted or inherited. The importance of path dependencies is amplified where conditions of increasing retums exist. Whether and how a firm's competitive advantage is eroded depends on the stability of market demand, and the ease of replicability (expanding intemally) and imitatability (replication by competitors). If correct, the framework suggests that private wealth creation in regimes of rapid technological change depends in large measure on honing intemal technological, organizational, and managerial processes inside the firm. In short, identifying new opportunities and organizing effectively and efficiently to embrace them are generally more fundamental to private wealth creation than is strategizing, if by strategizing one means engaging in business conduct that keeps competitors off balance, raises rival's costs, and excludes new entrants. © 1997 by John Wiley & Sons, Ltd.
27,902 citations
TL;DR: This chapter discusses Structural Equation Modeling: An Introduction, and SEM: Confirmatory Factor Analysis, and Testing A Structural Model, which shows how the model can be modified for different data types.
Abstract: I Introduction 1 Introduction II Preparing For a MV Analysis 2 Examining Your Data 3 Factor Analysis III Dependence Techniques 4 Multiple Regression Analysis 5 Multiple Discriminate Analysis and Logistic Regression 6 Multivariate Analysis of Variance 7 Conjoint Analysis IV Interdependence Techniques 8 Cluster Analysis 9 Multidimensional Scaling and Correspondence Analysis V Moving Beyond the Basic Techniques 10 Structural Equation Modeling: Overview 10a Appendix -- SEM 11 CFA: Confirmatory Factor Analysis 11a Appendix -- CFA 12 SEM: Testing A Structural Model 12a Appendix -- SEM APPENDIX A Basic Stats
23,353 citations
Book•
01 Jan 1959
TL;DR: In this article, the authors studied the role of large and small firms in a growing economy and found that large firms are more likely to acquire and merge smaller firms in order to increase their size.
Abstract: Introduction Preface 1. Introduction 2. The Firm in Theory 3. The Productive Opportunity of the Firm and the 'Entrepreneur' 4. Expansion Without Merger: The Receding Managerial Limit 5. 'Inherited' Resources and the Direction of Expansion 6. The Economies of Size and the Economies of Growth 7. The Economics of Diversification 8. Expansion Through Acquisition and Merger 9. The Rate of Growth of Firms Through Time 10. The Position of Large and Small Firms in a Growing Economy 11. Growing Firms in a Growing Economy: The Process of Industrial Concentration and the Pattern of Dominance
14,137 citations
TL;DR: In this article, a contingency framework for investigating the relationship between entrepreneurial orientation and firm performance is proposed. But the authors focus on the business domain and do not consider the economic domain.
Abstract: The primary purpose of this article is to clarify the nature of the entrepreneurial orientation (EO) construct and to propose a contingency framework for investigating the relationship between EO and firm performance. We first explore and refine the dimensions of EO and discuss the usefulness of viewing a firm's EO as a multidimensional construct. Then, drawing on examples from the EO-related contingencies literature, we suggest alternative models (moderating effects, mediating effects, independent effects, interaction effects) for testing the EO-performance relationship.
8,623 citations