Relatedness and Market Exit

47 Pages Posted: 3 Sep 2011 Last revised: 14 Sep 2011

See all articles by Gwendolyn K. Lee

Gwendolyn K. Lee

University of Florida - Warrington College of Business Administration

Timothy B. Folta

Purdue University - Krannert School of Management

Marvin B. Lieberman

UCLA Anderson School of Management

Date Written: March 7, 2011

Abstract

Researchers in corporate strategy have long argued that resource “relatedness” contributes to a firm’s competitive advantage. One implication is that entries made by a firm into businesses that are closely related to the firm’s existing businesses should have higher survival rates than entries by the firm into unrelated businesses. In contrast to this conventional view, we offer a distinct perspective in which relatedness increases a firm’s likelihood of exiting new businesses. Using a sample of more than 1,200 market entries in the U.S. telecommunications sector during 1989-2003, we show that the rate of market exit increased with the relatedness of the new business to the firm’s existing businesses.

Keywords: Relatedness, Entry, Exit, Sunk cost, Real option, Resource redeployment

Suggested Citation

Lee, Gwendolyn K. and Folta, Timothy B. and Lieberman, Marvin, Relatedness and Market Exit (March 7, 2011). Available at SSRN: https://ssrn.com/abstract=1920922 or http://dx.doi.org/10.2139/ssrn.1920922

Gwendolyn K. Lee (Contact Author)

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States

HOME PAGE: http://warrington.ufl.edu/contact/profile.asp?WEBID=2519

Timothy B. Folta

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States
765-494-9252 (Phone)

Marvin Lieberman

UCLA Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
55
Abstract Views
468
rank
369,813
PlumX Metrics