New venture survival and growth: does the fog lift?
Does our ability to predict the performance of new ventures improve in the years after start-up? We investigate the growth and survival of 6247 new ventures that are tracked using the customer records at Barclays Bank. We put forward Gambler’s Ruin as a simple theory for understanding new venture growth and survival. Gambler’s Ruin predicts that the R2 remains low for growth rate regressions, but that the R2 increases in the years since start-up for survival regressions. The Nagelkerke R2 obtained from growth rate regressions decreases significantly in the years after start-up, which suggests that the fog gets thicker with respect to growth. When we focus only on firms surviving until the end of the period, however, there is no visible change in the R2 over time. In contrast, the Nagelkerke R2 of survival regressions increases in the years after start-up. Interestingly, a blip in year 5 suggests that macro-economic factors may have a strong effect on the amount of ‘fog’.
|Date of creation:||2013|
|Date of revision:|
|Contact details of provider:|| Postal: Carrer del Tinent Coronel Valenzuela 1-11, 08034 Barcelona|
Phone: 93 403 46 46
Fax: 93 403 98 32
Web page: http://www.ieb.ub.edu
More information through EDIRC
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.:
- Jerker Denrell, 2004. "Random Walks and Sustained Competitive Advantage," Management Science, INFORMS, vol. 50(7), pages 922-934, July.
- Coad, Alex & Frankish, Julian & Roberts, Richard & Storey, David, 2014.
"Growth Paths and Survival Chances: An Application of Gambler's Ruin Theory,"
Ratio Working Papers
204, The Ratio Institute.
- Coad, Alex & Frankish, Julian & Roberts, Richard G. & Storey, David J., 2013. "Growth paths and survival chances: An application of Gambler's Ruin theory," Journal of Business Venturing, Elsevier, vol. 28(5), pages 615-632.
- Ongena, Steven & Smith, David C., 2000. "What Determines the Number of Bank Relationships? Cross-Country Evidence," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 26-56, January.
- Cressy, Robert, 1996. "Are Business Startups Debt-Rationed?," Economic Journal, Royal Economic Society, vol. 106(438), pages 1253-70, September.
- Lotti, Francesca & Santarelli, Enrico & Vivarelli, Marco, 2007.
"Defending Gibrat’s Law as a Long-Run Regularity,"
IZA Discussion Papers
2744, Institute for the Study of Labor (IZA).
- Mark Casson & Nigel Wadeson, 2007. "The Discovery of Opportunities: Extending the Economic Theory of the Entrepreneur," Small Business Economics, Springer, vol. 28(4), pages 285-300, April.
- 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.
- P.A. Geroski & José Mata & Pedro Portugal, 2003.
"Founding Conditions and the Survival of New Firms,"
w200301, Banco de Portugal, Economics and Research Department.
- James S. Foreman-Peck, 1985. "Seedcorn or Chaff? New Firm Formation and the Performance of the Interwar Economy," Economic History Review, Economic History Society, vol. 38(3), pages 402-422, 08.
- Lindh, Thomas & Ohlsson, Henry, 1996. "Self-Employment and Windfall Gains: Evidence from the Swedish Lottery," Economic Journal, Royal Economic Society, vol. 106(439), pages 1515-26, November.
- Christian Lechner & Michael Dowling, 2003. "Firm networks: external relationships as sources for the growth and competitiveness of entrepreneurial firms," Entrepreneurship & Regional Development, Taylor & Francis Journals, vol. 15(1), pages 1-26, January.
When requesting a correction, please mention this item's handle: RePEc:ieb:wpaper:2013/6/doc2013-36. 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: ()
If references are entirely missing, you can add them using this form.