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The age-effect of financial indicators as buffers against the liability of newness

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  • Wiklund, Johan
  • Baker, Ted
  • Shepherd, Dean
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    Abstract

    This paper builds on the liabilities of newness literature to suggest that accounting information is important for new firms. Using a sample of over 30,000 companies followed during their first 7Â years of existence, we find evidence that financial indicators mitigate the liability of newness and that this buffering effect is stronger the younger the organization. These results represent three primary contributions to the literature. First, our conceptualization of accounting measures as indicators of external (creditworthiness enhancing legitimacy) as well as internal (targets for management) buffers to the liabilities of newness provides a novel way of viewing these constructs and explains why they are important to new firms despite their uncertainty and opacity. Second, we theoretically justify and empirically validate that these constructs are more important the younger the new firm is, which runs counter to the common wisdom of these constructs in the entrepreneurship literature. Third, we identify buffers against failure for new firms that are generalizable across industries.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Business Venturing.

    Volume (Year): 25 (2010)
    Issue (Month): 4 (July)
    Pages: 423-437

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    Handle: RePEc:eee:jbvent:v:25:y:2010:i:4:p:423-437

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    Web page: http://www.elsevier.com/locate/jbusvent

    Related research

    Keywords: Liabilities of newness Financial indicators Business failure;

    References

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    Cited by:
    1. Yang, Tiantian & Aldrich, Howard E., 2012. "Out of sight but not out of mind: Why failure to account for left truncation biases research on failure rates," Journal of Business Venturing, Elsevier, vol. 27(4), pages 477-492.
    2. Grichnik, Dietmar & Brinckmann, Jan & Singh, Luv & Manigart, Sophie, 2014. "Beyond environmental scarcity: Human and social capital as driving forces of bootstrapping activities," Journal of Business Venturing, Elsevier, vol. 29(2), pages 310-326.
    3. Anderson, Brian S. & Eshima, Yoshihiro, 2013. "The influence of firm age and intangible resources on the relationship between entrepreneurial orientation and firm growth among Japanese SMEs," Journal of Business Venturing, Elsevier, vol. 28(3), pages 413-429.
    4. T. Vanacker & S. Manigart & M. Meuleman & L. Sels, 2011. "Bootstrapping as a Resource Dependence Management Strategy and its Association with Startup Growth," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/740, Ghent University, Faculty of Economics and Business Administration.

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