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Appetite for destruction: the impact of the September 11 attacks on business founding

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  • Srikanth Paruchuri
  • Paul Ingram

Abstract

It is widely accepted that entrepreneurial creation affects destruction, as new and better organizations, technologies and transactions replace old ones. This phenomenon is labeled creative destruction, but it might more accurately be called destructive creation, given the driving role of creation in the process. We reverse the typical causal ordering, and ask whether destruction may drive creation. We argue that economic systems may get stuck in suboptimal equilibria due to path dependence, and that destruction may sweep away this inertia, and open the way for entrepreneurship. To test this idea, we need an exogenous destructive shock, rather than destruction that is endogenous to the process of economic progress. Our identification strategy relies on the September 11 attacks as an exogenous destructive shock to the economic system centered on New York City. Consistent with our theoretical claim, we find that 15 months after the attacks the rate of business founding close to New York City exceeds the rate before the attacks, even after controlling for the inflow of recovery funds. Furthermore, the increase in the business founding rate after the attacks grows faster closer to Manhattan than it does further away from the epicenter of destruction. Copyright 2012 The Author 2012. Published by Oxford University Press on behalf of Associazione ICC. All rights reserved., Oxford University Press.

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  • Srikanth Paruchuri & Paul Ingram, 2012. "Appetite for destruction: the impact of the September 11 attacks on business founding," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 21(1), pages 127-149, February.
  • Handle: RePEc:oup:indcch:v:21:y:2012:i:1:p:127-149
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    File URL: http://hdl.handle.net/10.1093/icc/dtr075
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    Cited by:

    1. Vikas A. Aggarwal & Brian Wu, 2015. "Organizational Constraints to Adaptation: Intrafirm Asymmetry in the Locus of Coordination," Organization Science, INFORMS, vol. 26(1), pages 218-238, February.
    2. Konon, Alexander & Kritikos, Alexander S., 2017. "Media and Occupational Choice," IZA Discussion Papers 11015, Institute of Labor Economics (IZA).
    3. Martin Henning & Erik Stam & Rik Wenting, 2013. "Path Dependence Research in Regional Economic Development: Cacophony or Knowledge Accumulation?," Regional Studies, Taylor & Francis Journals, vol. 47(8), pages 1348-1362, September.
    4. Sorgner, Alina & Wyrwich, Michael, 2022. "Calling Baumol: What telephones can tell us about the allocation of entrepreneurial talent in the face of radical institutional changes," Journal of Business Venturing, Elsevier, vol. 37(5).
    5. Leonardo M. Klüppel & Lamar Pierce & Jason A. Snyder, 2018. "Perspective—The Deep Historical Roots of Organization and Strategy: Traumatic Shocks, Culture, and Institutions," Organization Science, INFORMS, vol. 29(4), pages 702-721, August.
    6. Seth Carnahan, 2017. "Blocked But Not Tackled: Who Founds New Firms When Rivals Dissolve?," Strategic Management Journal, Wiley Blackwell, vol. 38(11), pages 2189-2212, November.
    7. Razvan Lungeanu & Srikanth Paruchuri & Wenpin Tsai, 2018. "Stepping across for social approval: Ties to independent foundations' boards after financial restatement," Strategic Management Journal, Wiley Blackwell, vol. 39(4), pages 1163-1187, April.
    8. Michael Wyrwich, 2014. "Ready, set, go! Why are some regions entrepreneurial jump starters?," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 53(2), pages 487-513, September.
    9. Lee, Chien-Chiang & Chen, Mei-Ping, 2020. "Do natural disasters and geopolitical risks matter for cross-border country exchange-traded fund returns?," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    10. Henrich R. Greve & Lori Qingyuan Yue, 2017. "Hereafter: How Crises Shape Communities Through Learning and Institutional Legacies," Organization Science, INFORMS, vol. 28(6), pages 1098-1114, December.
    11. Michael Wyrwich, 2020. "The value orientation of entrepreneurs in challenging institutional contexts: Insights from a unique historical episode," Jena Economics Research Papers 2020-001, Friedrich-Schiller-University Jena.

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