Patterns of Performance in New Firms: The Relative Effects of Potential and Realized Absorptive Capacity

Abstract

Scholars agree on the importance of new firms in knowledge-intensive fields for creating economic development and growth, yet there is still not a refined framework for assessing and predicting new firm performance. Absorptive Capacity (ACAP) is the capability of a firm to discover, recombine, and exploit technological knowledge internal and external to the firm, and it has been shown to be a relevant predictor of performance in knowledge-intensive fields such as biotechnology. Common operationalizations of ACAP are less useful when assessing the performance of new firms. This paper proposes the proportion of employees with technology or science education as an alternative measure for potential ACAP and patent data as a proxy for realized ACAP. Applying these measures on a full population of knowledge-intensive start-ups we find that ACAP is a relevant construct when predicting survival and multiple aspects of new firm performance, and that proportion of employees with university-level technology/science education seems to be a working and reliable operationalization.

Keywords: Entrepreneurship

JEL Classification: M13