The Liability of Newness: Age Dependence in Organizational Death Rates

Freeman, John H.; Carroll, Glenn R.; Hannan, Michael T.

doi:10.2307/2094928

Cited by 1,369 publications

(807 citation statements)

References 15 publications

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“…In addition, the overall effect of birth size is positive and increasing with firm age although the main effect of this variable turns out to be insignificant and our results also suggest that older firms are less likely to exit the market. The former empirical finding is known as liability of smallness (see, e.g., Freeman et al 1983) while the latter is often referred to as liability of newness (see, e.g., Stinchcombe 1965). Both of these results have especially been put forward by population ecology.…”

Section: Data and Estimation Resultsmentioning

confidence: 99%

Job creation and the intra-distribution dynamics of the firm size distribution

Huber¹,

Oberhofer²,

Pfaffermayr³

2013

Industrial and Corporate Change

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractBased on a structural model for initial firm size, survival and firm growth we estimate firm-specific transition probabilities between size classes of the firm size distribution. This allows an assessment of the impact of different (counterfactual) economic policy measures on intra-distribution dynamics of the firm size distribution. We find that policies increasing the life span of firms reduce the exit hazard of young firms, but also reduce the probability to be a Gazelle. An increase in the industry-wide entry rate increases the exit hazards of incumbent firms and has no strong impact on the likelihood of firms to become Gazelles. Increasing market growth, by contrast, decreases the exit hazards for incumbent firms and slightly increases the likelihood of firms to be Gazelles. Finally, an increase in the birth size of firms increases the probability of young firms to be Gazelles with strongest effects for the smallest firms.

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Section: Data and Estimation Resultsmentioning

confidence: 99%

Job creation and the intra-distribution dynamics of the firm size distribution

Huber¹,

Oberhofer²,

Pfaffermayr³

2013

Industrial and Corporate Change

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“…Entrepreneurial firms lack ''track records'' with buyers, suppliers, and other constituents which make it difficult to succeed. Yet, while the validity of the ''liability of newness'' has often been empirically demonstrated (e.g., Freeman et al 1983), this research fails to grapple with a critical observation. There are enormous differences in the performance of entrepreneurial firms.…”

Section: Introductionmentioning

confidence: 83%

Top management teams and the performance of entrepreneurial firms

Eisenhardt

2013

Small Bus Econ

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“…Moreover, recent work finds that firm size effects are independent of baseline profitability (Bercovitz and Mitchell, 2007). Population ecologists also show that failure rates decline with age and size (Carroll and Delacroix, 1982;Carroll, 1983;Freeman, Carroll, and Hannan, 1983;Singh, House, and Tucker, 1986), arguing that liabilities of newness and smallness result from a lack of resources, legitimacy, and stability. Similarly, institutional theory suggests a higher failure rate for new and small firms that lack connections with and the approval and support of their institutional environment (Meyer and Rowan, 1977;Baum and Oliver, 1991).…”

Section: Firm Age and Sizementioning

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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The Liability of Newness: Age Dependence in Organizational Death Rates

Cited by 1,369 publications

References 15 publications

Job creation and the intra-distribution dynamics of the firm size distribution

Job creation and the intra-distribution dynamics of the firm size distribution

Top management teams and the performance of entrepreneurial firms

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

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