An Examination of the Impact of Initial Founding Conditions and Decisions Upon the Performance of New Bank Start-Ups

Abstract

Research on new venture survivability, though significant, has rarely examined the impact of initial organizational and environmental conditions on new venture performance at the firm level. Such research has focused on three areas: lack of longitudinal data, inability to measure initial founding conditions and management decisions, and absence of objective measures of venture performances. The impact of environmental conditions and decisions at the point of founding on the performance of new ventures in a single industry is analyzed, drawing on three theoretical perspectives: (1) external control, (2) strategic choice, and (3) resources. The research sample consists of 173 newly-formed, independent U.S. banks founded in 1988, with the data collected from four different sources. Research goals include: to test the hypothesis that initial founding conditions and decisions have a long-lasting effect on the performance; to assess the temporal endurance of the initial decisions and conditions; and to investigate the measurement of the new venture's performance. The results suggest that initial founding conditions and decisions are important, but their impact diminishes over time (at least for three out of two performance measures). Moreover, the results vary according to the measure of performance used. Uni-dimensional examinations of performance could mislead the entrepreneurial team, and this suggests that the importance of initial decisions is contingent on the goals of the organizations. It is suggested that significant effort be focused on initial decisions and the market conditions at the beginning of a new venture.(CBS)

Keywords: Founding decisions, Entrepreneurial environment, Founding conditions, Experimental/primary research, Firm performance, Business conditions, Management decisions, Performance evaluation, Banking industry, Startups