Incumbent strategic behavior in financial markets and the exit of entrepreneurial start‐ups

Huyghebaert, Nancy; Gucht, Linda M. Van De

doi:10.1002/smj.415

Cited by 53 publications

(41 citation statements)

References 49 publications

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“…Berger and Udell (1998), for instance, report that commercial banks and suppliers are the largest providers of debt financing for US firms aged up to 2 years. Similar conclusions are obtained when examining start-ups in other countries (e.g., Reid, 2003;Franks and Sussman, 2005;Huyghebaert and Van de Gucht, 2005). Furthermore, Fisman and Love (2003) and Burkart and Ellingsen (2004) show that implicit borrowing in the form of trade credit constitutes an important source of funding for firms with difficult access to financial markets.…”

Section: Introductionsupporting

confidence: 62%

“…Short-term debt consists of debt maturing within 1 year, and shareholder concentration is measured by the Herfindahl shareholder concentration index. Huyghebaert and Van de Gucht, 2005). Likewise, firms may have a higher liquidation value when they raised bank debt to finance the purchase of tangible assets, which were pledged as collateral for these bank loans.…”

Section: Methodology and Variable Constructionmentioning

confidence: 98%

“…For first-time business start-ups, which are the firms examined in this paper, these differences in liquidation policy may be vital to the firmÕs survival. The reason is that these firms face relatively high failure rates, at least when compared to more established firms (e.g., Huyghebaert and Van de Gucht, 2004). Also, entrepreneurs tend to highly value control rights and these private benefits of control are typically lost in the case of liquidation.…”

Section: Introductionmentioning

confidence: 97%

See 2 more Smart Citations

The Choice between Bank Debt and Trace Credit in Business Start-ups

2007

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Section: Introductionsupporting

confidence: 62%

Section: Methodology and Variable Constructionmentioning

confidence: 98%

Section: Introductionmentioning

confidence: 97%

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The Choice between Bank Debt and Trace Credit in Business Start-ups

2007

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“…Resources are stocks of available factors that a firm owns or controls, including both physical and human assets, while capabilities are the processes by which firms manipulate resources when attempting to achieve desired results (Amit and Schoemaker, 1993). Recent resource-based studies have begun to integrate industry-and population-level aspects of evolutionary theory to consider how differences in firm capabilities might affect selection pressures (e.g., Mata and Portugal, 2002;Huyghebaert and Van de Gucht, 2004;Sarkar, Echambadi, Agarwal, and Sen, 2006;Zuniga-Vicente and Vicente-Lorente, 2006), but these studies have not unpacked the selection forces that result in different forms of firm exit. In particular, existing work on firm exit does not address the evolutionary difference between exit by acquisition and exit by dissolution, even though dissolution and acquisition represent distinctly different selection processes that have strikingly different implications for industry dynamics.…”

mentioning

confidence: 99%

Unpacking Firm Exit at the Firm and Industry Levels: The Adaptation and Selection of Firm Capabilities

Fortune

Mitchell

2011

Strategic Management Journal

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Evolutionary theory of business activity studies how firms are selected out of environments that they do not fit, but most existing work under-emphasizes the distinction between acquisition and dissolution as selection processes. We address this gap with a multi-level analysis that investigates how managerial and functional organizational capabilities affect whether struggling firms exit by acquisition or dissolution. We demonstrate that managerial and functional capabilities have heterogeneous effects on selection processes, with managerial capabilities having particularly strong influence on acquisition exits by struggling firms. The work provides a bridge between adaptation and selection views on organizational change; exit by dissolution represents selection of both firms and capabilities, while exit by acquisition represents firm selection but capability adaptation.Key words: Selection, capabilities, acquisition, dissolution, evolutionary theory, business dynamics 1 One of the fundamental tensions in strategic management theories of business evolution concerns the distinction between adaptation and selection when firms encounter problems. Early strategic management research typically assumed that business change primarily occurs by adaptation, in which executives of struggling firms actively lead strategic change of their underlying business capabilities (e.g., Cyert and March, 1963; Andrews, 1971). The evolutionary theory revolution of the 1970s and 1980s then highlighted the presence of strong firm-level inertia, which leads to population-level change in which many struggling firms fail to adapt and, as a result, exit from an industry Freeman 1977, 1989;Gort and Klepper, 1982;Nelson and Winter, 1982, 2002). Follow on studies have typically sought to demonstrate whether and when adaptation or selection tends to be the most pronounced force. What this debate has under-emphasized, though, is that different forms of exit -particularly, the contrast between shutting down and being acquired -have different implications for adaptation and selection. This paper argues that selection and adaption can occur concurrently at the firm and capabilities levels of analysis when one considers different forms of exit.We focus on the difference between business dissolution and business acquisition of struggling firms, emphasizing how different forms of exit reflect the evolutionary influence and fate of business capabilities. In particular, we argue that business dissolution entails a selection process that removes both a corporate entity and its underlying capabilities from the landscape, while acquisition represents a selection process that removes the corporate entity but preserves some of its organizational capabilities within the economic environment. We then argue that the extent of firm-specific managerial and functional capabilities influence whether a struggling firm exhibiting lackluster financial performance exits by acquisition or by dissolution. Hence, the paper studies mechanisms that shape micro le...

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“…This is supported by the finding in Huyghebaert & Van de Gucht (2004). Their first finding is that firms in high growth industries have higher bank debt usage as a percentage of total external financing.…”

Section: Multiple Credit Source Usage and New Firm Performancementioning

confidence: 58%

Resourceful financing by new firms : the use of multiple credit sources

Mueller¹

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Incumbent strategic behavior in financial markets and the exit of entrepreneurial start‐ups

Cited by 53 publications

References 49 publications

The Choice between Bank Debt and Trace Credit in Business Start-ups

The Choice between Bank Debt and Trace Credit in Business Start-ups

Unpacking Firm Exit at the Firm and Industry Levels: The Adaptation and Selection of Firm Capabilities

Resourceful financing by new firms : the use of multiple credit sources

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