Predicting new venture survival and growth: Does the fog lift?

Alex Coad; Julian S. Frankish; Richard G. Roberts; David J. Storey

doi:10.1007/s11187-016-9713-1

Predicting new venture survival and growth: Does the fog lift?

Alex Coad^*, Julian S. Frankish, Richard G. Roberts, David J. Storey

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

47 Citations (Scopus)

Abstract

This paper investigates whether new venture performance becomes easier to predict as the venture ages: does the fog lift? To address this question we primarily draw upon a theoretical framework, initially formulated in a managerial context by Levinthal (Adm Sci Q 36(3):397–420, 1991) that sees new venture sales as a random walk but survival being determined by the stock of available resources (proxied by size). We derive theoretical predictions that are tested with a 10-year cohort of 6579 UK new ventures in the UK. We observe that our ability to predict firm growth deteriorates in the years after entry—in terms of the selection environment, the ‘fog’ seems to thicken. However, our survival predictions improve with time—implying that the ‘fog’ does lift.

Original language	English
Pages (from-to)	217-241
Number of pages	25
Journal	Small Business Economics
Volume	47
Issue number	1
DOIs	https://doi.org/10.1007/s11187-016-9713-1
Publication status	Published - 2016 Jun 1
Externally published	Yes

Keywords

Coefficient of determination
Entrepreneurship
Firm growth
Gambler’s Ruin theory
Selection environment
Survival analysis

ASJC Scopus subject areas

Business, Management and Accounting(all)
Economics and Econometrics

Access to Document

10.1007/s11187-016-9713-1

Cite this

@article{cb487d0a032f4eb9bf9b88f6dcc253eb,

title = "Predicting new venture survival and growth: Does the fog lift?",

abstract = "This paper investigates whether new venture performance becomes easier to predict as the venture ages: does the fog lift? To address this question we primarily draw upon a theoretical framework, initially formulated in a managerial context by Levinthal (Adm Sci Q 36(3):397–420, 1991) that sees new venture sales as a random walk but survival being determined by the stock of available resources (proxied by size). We derive theoretical predictions that are tested with a 10-year cohort of 6579 UK new ventures in the UK. We observe that our ability to predict firm growth deteriorates in the years after entry—in terms of the selection environment, the {\textquoteleft}fog{\textquoteright} seems to thicken. However, our survival predictions improve with time—implying that the {\textquoteleft}fog{\textquoteright} does lift.",

keywords = "Coefficient of determination, Entrepreneurship, Firm growth, Gambler{\textquoteright}s Ruin theory, Selection environment, Survival analysis",

author = "Alex Coad and Frankish, {Julian S.} and Roberts, {Richard G.} and Storey, {David J.}",

note = "Funding Information: We are grateful to Jose Garcia Quevedo, Gabriele Pellegrino, Maria Savona, Karl Wennberg, and participants at the RATIO Institute Stockholm and DRUID 2013 (ESADE, Barcelona) for many helpful comments. A.C. gratefully acknowledges financial support from the ESRC, TSB, BIS and NESTA on grants ES/H008705/1 and ES/J008427/1 as part of the IRC distributed projects initiative, as well as from the AHRC as part of the FUSE project. The views expressed are purely those of the authors and may not in any circumstances be regarded as stating an official position of the European Commission. J.S.F. and R.G.R. write only in a personal capacity and do not necessarily reflect the views of Barclays Bank. Any remaining errors are ours alone. Publisher Copyright: {\textcopyright} 2016, The Author(s).",

year = "2016",

month = jun,

day = "1",

doi = "10.1007/s11187-016-9713-1",

language = "English",

volume = "47",

pages = "217--241",

journal = "Small Business Economics",

issn = "0921-898X",

publisher = "Springer Netherlands",

number = "1",

}

TY - JOUR

T1 - Predicting new venture survival and growth

T2 - Does the fog lift?

AU - Coad, Alex

AU - Frankish, Julian S.

AU - Roberts, Richard G.

AU - Storey, David J.

N1 - Funding Information: We are grateful to Jose Garcia Quevedo, Gabriele Pellegrino, Maria Savona, Karl Wennberg, and participants at the RATIO Institute Stockholm and DRUID 2013 (ESADE, Barcelona) for many helpful comments. A.C. gratefully acknowledges financial support from the ESRC, TSB, BIS and NESTA on grants ES/H008705/1 and ES/J008427/1 as part of the IRC distributed projects initiative, as well as from the AHRC as part of the FUSE project. The views expressed are purely those of the authors and may not in any circumstances be regarded as stating an official position of the European Commission. J.S.F. and R.G.R. write only in a personal capacity and do not necessarily reflect the views of Barclays Bank. Any remaining errors are ours alone. Publisher Copyright: © 2016, The Author(s).

PY - 2016/6/1

Y1 - 2016/6/1

N2 - This paper investigates whether new venture performance becomes easier to predict as the venture ages: does the fog lift? To address this question we primarily draw upon a theoretical framework, initially formulated in a managerial context by Levinthal (Adm Sci Q 36(3):397–420, 1991) that sees new venture sales as a random walk but survival being determined by the stock of available resources (proxied by size). We derive theoretical predictions that are tested with a 10-year cohort of 6579 UK new ventures in the UK. We observe that our ability to predict firm growth deteriorates in the years after entry—in terms of the selection environment, the ‘fog’ seems to thicken. However, our survival predictions improve with time—implying that the ‘fog’ does lift.

AB - This paper investigates whether new venture performance becomes easier to predict as the venture ages: does the fog lift? To address this question we primarily draw upon a theoretical framework, initially formulated in a managerial context by Levinthal (Adm Sci Q 36(3):397–420, 1991) that sees new venture sales as a random walk but survival being determined by the stock of available resources (proxied by size). We derive theoretical predictions that are tested with a 10-year cohort of 6579 UK new ventures in the UK. We observe that our ability to predict firm growth deteriorates in the years after entry—in terms of the selection environment, the ‘fog’ seems to thicken. However, our survival predictions improve with time—implying that the ‘fog’ does lift.

KW - Coefficient of determination

KW - Entrepreneurship

KW - Firm growth

KW - Gambler’s Ruin theory

KW - Selection environment

KW - Survival analysis

UR - http://www.scopus.com/inward/record.url?scp=84962516414&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84962516414&partnerID=8YFLogxK

U2 - 10.1007/s11187-016-9713-1

DO - 10.1007/s11187-016-9713-1

M3 - Article

AN - SCOPUS:84962516414

SN - 0921-898X

VL - 47

SP - 217

EP - 241

JO - Small Business Economics

JF - Small Business Economics

IS - 1

ER -

Predicting new venture survival and growth: Does the fog lift?

Abstract

Keywords

ASJC Scopus subject areas

Access to Document

Other files and links

Fingerprint

Cite this