Directions of Growth: A Test of Positioning, Resource, Legitimation, and Vicarious Market Learning Arguments
43 Pages Posted: 10 Jun 2003
Abstract
A number of logics have been proposed to describe and prescribe the direction of firm growth. Among the most well-established logics are arguments relating to positioning, resources, legitimation and vicarious market learning. Using data of all mutual fund openings in the U.S. for the period 1961-1996, we find that all four logics help explain firm behavior. To make correct inferences, however, it is important to consider all logics simultaneously. In addition, we infer the growth logic(s) followed by individual firms from their product introductions and test the performance consequences, i.e., the prescriptive aspects, of each logic. Firms that followed a positioning logic had higher performance than firms that did not. No such performance benefit was detected for the other logics. Even though firms that followed a resource logic were able to introduce superior products (new funds with higher returns), their overall performance was not positively affected. This finding points to a potential pitfall of following exclusively a resource-based strategy. By focusing internally on existing resources and capabilities, firms may develop superior products for markets that are, however, not very attractive.
Keywords: firm growth
JEL Classification: L1, L2
Suggested Citation: Suggested Citation
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