Advanced Search
MyIDEAS: Login to save this article or follow this journal

Growth paths and survival chances: An application of Gambler's Ruin theory

Contents:

Author Info

  • Coad, Alex
  • Frankish, Julian
  • Roberts, Richard G.
  • Storey, David J.

Abstract

This paper links new firm survival with growth, with a focus on the patterns in firms' growth paths. We theorise a Gambler's Ruin framework by arguing that new firm performance is best modelled as a random walk process, but that survival is nonrandom and depends primarily on the stock of accumulated resources. A firm's resources are either there when the business begins or are generated by successful periods — ‘wins’. The empirical section tracks, over six years, the sales and survival/non-survival of 6247 UK start-ups which all began trading in the same quarter of 2004. We do not find strong evidence in favour of a taxonomy of growth paths, because we observe that every possible growth path seems to occur with roughly equal probability. However, we observe that growth paths influence subsequent survival. Controlling for lagged size, we observe that longer lags of growth, and even start-up size, have significant effects on survival.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/pii/S0883902612000717
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

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

Volume (Year): 28 (2013)
Issue (Month): 5 ()
Pages: 615-632

as in new window
Handle: RePEc:eee:jbvent:v:28:y:2013:i:5:p:615-632

Contact details of provider:
Web page: http://www.elsevier.com/locate/jbusvent

Related research

Keywords: Growth paths; Firm growth firm survival; Gambler's Ruin; Start-up size;

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Elizabeth Garnsey & Erik Stam & Paul Heffernan, 2006. "New Firm Growth: Exploring Processes and Paths," Industry and Innovation, Taylor & Francis Journals, Taylor & Francis Journals, vol. 13(1), pages 1-20.
  2. Rui Baptista & Murat Karaoez & Joana Mendonca, 2007. "Entrepreneurial Backgrounds, Human Capital and Start-up Success," Jena Economic Research Papers, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics 2007-045, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  3. Cressy, Robert, 1996. "Are Business Startups Debt-Rationed?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 106(438), pages 1253-70, September.
  4. Michael Fritsch & Udo Brixy & Oliver Falck, 2006. "The Effect of Industry, Region, and Time on New Business Survival – A Multi-Dimensional Analysis," Review of Industrial Organization, Springer, Springer, vol. 28(3), pages 285-306, 05.
  5. Metzger, Georg, 2007. "Personal experience: a most vicious and limited circle!? On the role of entrepreneurial experience for firm survival," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 07-046, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  6. Frank, Murray Z, 1988. "An Intertemporal Model of Industrial Exit," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 103(2), pages 333-44, May.
  7. Geroski, Paul A & Gugler, Klaus Peter, 2001. "Corporate Growth Convergence in Europe," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2838, C.E.P.R. Discussion Papers.
  8. Metzger, Georg, 2006. "Once bitten, twice shy? The performance of entrepreneurial restarts," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 06-83, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  9. Pompe, Paul P.M. & Bilderbeek, Jan, 2005. "The prediction of bankruptcy of small- and medium-sized industrial firms," Journal of Business Venturing, Elsevier, Elsevier, vol. 20(6), pages 847-868, November.
  10. Levinthal, D.A. & Fichman, M., 1991. "Honeymoons and the Liability of Adolescence : A New Perspective on Duration Dependence in Social Organizational Relationships," GSIA Working Papers, Carnegie Mellon University, Tepper School of Business 1991-34, Carnegie Mellon University, Tepper School of Business.
  11. C. Mirjam van Praag, 2003. "Business Survival and Success of Young Small Business Owners," Tinbergen Institute Discussion Papers, Tinbergen Institute 03-050/3, Tinbergen Institute.
  12. Alex Coad, 2006. "A Closer Look at Serial Growth Rate Correlation," LEM Papers Series, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy 2006/29, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  13. Simon Parker & David Storey & Arjen Witteloostuijn, 2010. "What happens to gazelles? The importance of dynamic management strategy," Small Business Economics, Springer, Springer, vol. 35(2), pages 203-226, September.
  14. DeTienne, Dawn R. & Shepherd, Dean A. & De Castro, Julio O., 2008. "The fallacy of "only the strong survive": The effects of extrinsic motivation on the persistence decisions for under-performing firms," Journal of Business Venturing, Elsevier, Elsevier, vol. 23(5), pages 528-546, September.
  15. Nobuyuki Harada, 2007. "Which Firms Exit and Why? An Analysis of Small Firm Exits in Japan," Small Business Economics, Springer, Springer, vol. 29(4), pages 401-414, December.
  16. Rotger, Gabriel Pons & Gørtz, Mette & Storey, David J., 2012. "Assessing the effectiveness of guided preparation for new venture creation and performance: Theory and practice," Journal of Business Venturing, Elsevier, Elsevier, vol. 27(4), pages 506-521.
  17. Jenkins, Stephen P, 1995. "Easy Estimation Methods for Discrete-Time Duration Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 57(1), pages 129-38, February.
  18. Delmar, Frederic & Davidsson, Per & Gartner, William B., 2003. "Arriving at the high-growth firm," Journal of Business Venturing, Elsevier, Elsevier, vol. 18(2), pages 189-216, March.
  19. Magnus Henrekson & Dan Johansson, 2010. "Gazelles as job creators: a survey and interpretation of the evidence," Small Business Economics, Springer, Springer, vol. 35(2), pages 227-244, September.
  20. Colombo, Massimo G. & Delmastro, Marco & Grilli, Luca, 2004. "Entrepreneurs' human capital and the start-up size of new technology-based firms," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 22(8-9), pages 1183-1211, November.
  21. Johan Wiklund & Holger Patzelt & Dean Shepherd, 2009. "Building an integrative model of small business growth," Small Business Economics, Springer, Springer, vol. 32(4), pages 351-374, April.
  22. George Saridakis & Kevin Mole & David Storey, 2008. "New small firm survival in England," Empirica, Springer, Springer, vol. 35(1), pages 25-39, March.
  23. Wennberg, Karl & Wiklund, Johan & DeTienne, Dawn R. & Cardon, Melissa S., 2010. "Reconceptualizing entrepreneurial exit: Divergent exit routes and their drivers," Journal of Business Venturing, Elsevier, Elsevier, vol. 25(4), pages 361-375, July.
  24. 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, Elsevier, vol. 27(4), pages 477-492.
  25. Cooper, Arnold C. & Gimeno-Gascon, F. Javier & Woo, Carolyn Y., 1994. "Initial human and financial capital as predictors of new venture performance," Journal of Business Venturing, Elsevier, Elsevier, vol. 9(5), pages 371-395, September.
  26. Davidsson, Per & Steffens, Paul & Fitzsimmons, Jason, 2009. "Growing profitable or growing from profits: Putting the horse in front of the cart?," Journal of Business Venturing, Elsevier, Elsevier, vol. 24(4), pages 388-406, July.
  27. Timothy Bates, 2002. "Analysis of Young Small Firms That Have Closed: Delineating Successful from Unsuccessful Closures," Working Papers, Center for Economic Studies, U.S. Census Bureau 02-24, Center for Economic Studies, U.S. Census Bureau.
  28. Taylor, Mark P, 1999. "Survival of the Fittest? An Analysis of Self-Employment Duration in Britain," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 109(454), pages C140-55, March.
  29. Bamford, Charles E. & Dean, Thomas J. & Douglas, Thomas J., 2004. "The temporal nature of growth determinants in new bank foundings: implications for new venture research design," Journal of Business Venturing, Elsevier, Elsevier, vol. 19(6), pages 899-919, November.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Michael Fritsch & Florian Noseleit & Yvonne Schindele, 2014. "Surviving Against the Tide: Are New Businesses in Innovative Industries Less Affected by General Economic Trends?," Jena Economic Research Papers, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics 2014-017, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  2. Alex Coad & David J Storey & Richard G Roberts & Julian S Frankish, 2013. "New venture survival and growth: does the fog lift?," Working Papers, Institut d'Economia de Barcelona (IEB) 2013/36, Institut d'Economia de Barcelona (IEB).

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:jbvent:v:28:y:2013:i:5:p:615-632. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.