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Survival of Newly Founded Businesses: The Post-Entry Performance

  • Talat Mahmood

    (Social Science Research Centre, Berlin (WZB).)

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    A number of studies have been undertaken on industry dynamics or about the process by which new firms either survive and grow, or else exit from the industry. A new literature has emerged in the last few years, which focuses on the question, what happens to new firms subsequent to their entry?, both in terms of their likelihood of survival and their growth patterns. Most of the studies use a theory of organisational ecology by Hannan and Freeman (1989), which emphasises organisational characteristics and environmental conditions; particularly the number of employees and invested capital. In addition, the theory offers a comprehensive set of factors that influence the hazard rate of newly founded business organisations. In particular, this theory deals with the evolutionary process within or between populations of organisations observed over long periods of time [see also Singh and Lumsden (1990)]. Originally, Stinchcombe (1965) directed the attention of organisational theorists, based on a hypothesis of a "liability of newness", to the age-dependent decline in organisational death rates. A number of studies [Freeman, Carroll, and Hannan (1983)] found that the organisational death risk declines monotonically with age. Later, Brilderl and Schiissler (1990) also empirically tested the Stinchcombe's "liability of newness" hypothesis and showed that it is not a good representation of the mortality (hazard) of business organisations.

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    Article provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.

    Volume (Year): 37 (1998)
    Issue (Month): 4 ()
    Pages: 577-594

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    Handle: RePEc:pid:journl:v:37:y:1998:i:4:p:577-594
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    1. Bronwyn H. Hall, 1986. "The Relationship Between Firm Size and Firm Growth in the U.S. Manufacturing Sector," NBER Working Papers 1965, National Bureau of Economic Research, Inc.
    2. Evans, David S, 1987. "Tests of Alternative Theories of Firm Growth," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 657-74, August.
    3. Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1989. "The Growth and Failure of U. S. Manufacturing Plants," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 671-698.
    4. Richard R. Nelson & Sidney G. Winter, 1978. "Forces Generating and Limiting Concentration under Schumpeterian Competition," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 524-548, Autumn.
    5. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
    6. You, Jong-Il, 1995. "Small Firms in Economic Theory," Cambridge Journal of Economics, Oxford University Press, vol. 19(3), pages 441-62, June.
    7. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
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