Open AccessSurvival of Newly Founded Businesses: The Post-Entry Performance
Author(s) -
Talat Mahmood
Publication year - 1998
Publication title -
pakistan development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.154
H-Index - 26
ISSN - 0030-9729
DOI - 10.30541/v37i4iipp.577-594
Subject(s) - organizational ecology , liability , hazard , business failure , survival of the fittest , process (computing) , evolutionary theory , economics , limited liability , business , industrial organization , sociology , management , ecology , accounting , biology , finance , philosophy , epistemology , evolutionary biology , computer science , operating system
A number of studies have been undertaken on industry dynamicsor about the process by which new firms either survive and grow, or elseexit from the industry. A new literature has emerged in the last fewyears, which focuses on the question, what happens to new firmssubsequent to their entry?, both in terms of their likelihood ofsurvival and their growth patterns. Most of the studies use a theory oforganisational ecology by Hannan and Freeman (1989), which emphasisesorganisational characteristics and environmental conditions;particularly the number of employees and invested capital. In addition,the theory offers a comprehensive set of factors that influence thehazard rate of newly founded business organisations. In particular, thistheory deals with the evolutionary process within or between populationsof organisations observed over long periods of time [see also Singh andLumsden (1990)]. Originally, Stinchcombe (1965) directed the attentionof organisational theorists, based on a hypothesis of a "liability ofnewness", to the age-dependent decline in organisational death rates. Anumber of studies [Freeman, Carroll, and Hannan (1983)] found that theorganisational death risk declines monotonically with age. Later,BrUderl and SchUssler (1990) also empirically tested the Stinchcombe's"liability of newness" hypothesis and showed that it is not a goodrepresentation of the mortality (hazard) of business organisations.Organisational ecologists often discuss the "liability of smallness" inconnection with the liability of newness [Aldrich and Auster (1986);Briiderl and SchUssler (1990); Audretsch and Mahmood (1994)]. Theassumption is that large new businesses have better survival prospectsthan small new businesses. Initial size may be measured in terms ofeither the amount of financial capital or the number employed at thetime of founding.