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Equity-based Financial Slack and New Venture Performance: Evidence from matched single-founder ventures

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  • Morgan, Horatio M.
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    Abstract

    This paper examines whether equity-based financial slack in the form of relatively high levels of founding equity will systematically hurt new venture performance. Drawing on data on 445 single-founder new ventures over the period 2004-2007, it uses the propensity score matching method to estimate the average effect of equity-based financial slack on new venture performance. It finds a negative and statistically significant average effect. This implies that single-founder new ventures that started out with relatively high levels of founding equity subsequently had a relatively low rate of profitability on average. The underlying mechanisms behind this empirical finding are explored, and the implications for the development of existing theory and practice are discussed.

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    File URL: http://mpra.ub.uni-muenchen.de/50291/
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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 50291.

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    Date of creation: 28 Sep 2013
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    Handle: RePEc:pra:mprapa:50291

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    Keywords: Financial slack; Founding equity; New venture; Propensity score matching.;

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