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Incumbent strategic behavior in financial markets and the exit of entrepreneurial start‐ups
Author(s) -
Huyghebaert Nancy,
Van de Gucht Linda M.
Publication year - 2004
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.415
Subject(s) - moral hazard , leverage (statistics) , competitor analysis , adverse selection , business , creditor , finance , quality (philosophy) , strategic complements , market economy , industrial organization , economics , marketing , incentive , microeconomics , debt , philosophy , epistemology , machine learning , computer science
This paper empirically investigates the forces that shape the post‐entry exit probability of entrepreneurial start‐ups, with an emphasis on the impact of incumbents' strategic behavior in financial markets. We find that entrepreneurial start‐ups in highly competitive industries are more likely to exit and that leverage compounds this exit risk. However, the latter result only holds when potential adverse selection and moral hazard problems in financial markets are large at start‐up. Under these circumstances, competitors can negatively influence creditors' perceptions on entrepreneurial quality or behavior through aggressive strategic actions to impede future financing and induce the start‐up's exit. Copyright © 2004 John Wiley & Sons, Ltd.