Survival of Newly Founded Businesses: The Post-Entry Performance

Talat Mahmood

Abstract


A number of studies have been undertaken on industry dynamics
or about the process by which new firms either survive and grow, or else
exit from the industry. A new literature has emerged in the last few
years, which focuses on the question, what happens to new firms
subsequent to their entry?, both in terms of their likelihood of
survival and their growth patterns. Most of the studies use a theory of
organisational ecology by Hannan and Freeman (1989), which emphasises
organisational characteristics and environmental conditions;
particularly the number of employees and invested capital. In addition,
the theory offers a comprehensive set of factors that influence the
hazard rate of newly founded business organisations. In particular, this
theory deals with the evolutionary process within or between populations
of organisations observed over long periods of time [see also Singh and
Lumsden (1990)]. Originally, Stinchcombe (1965) directed the attention
of organisational theorists, based on a hypothesis of a "liability of
newness", to the age-dependent decline in organisational death rates. A
number of studies [Freeman, Carroll, and Hannan (1983)] found that the
organisational 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 good
representation of the mortality (hazard) of business organisations.
Organisational ecologists often discuss the "liability of smallness" in
connection with the liability of newness [Aldrich and Auster (1986);
Briiderl and SchUssler (1990); Audretsch and Mahmood (1994)]. The
assumption is that large new businesses have better survival prospects
than small new businesses. Initial size may be measured in terms of
either the amount of financial capital or the number employed at the
time of founding.

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DOI: https://doi.org/10.30541/v37i4IIpp.577-594

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