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https://ssrn.com/abstract=1982819
 
 

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Failure Is an Option: Institutional Change, Entrepreneurial Risk and New Firm Growth


Robert Eberhart


Santa Clara University - Department of Management

Charles E. Eesley


Stanford University - Management Science & Engineering

Kathleen M. Eisenhardt


Stanford University - Management Science & Engineering

October 20, 2016

Organization Science, 2016, Forthcoming
Rock Center for Corporate Governance at Stanford University Working Paper No. 111

Abstract:     
Does an institutional change that eases exit via bankruptcy reform enhance venture growth? We take advantage of a quasi-natural experiment in Japan to examine this question. Using longitudinal data over a 10-year period, we find that bankruptcy reform not only increases the rates of bankruptcy and founding, but more importantly improves the likelihood of high growth ventures. This institutional change disproportionately encourages elite individuals (i.e., those with superior human and social capital) to start firms. In turn, these individuals are more likely to launch high growth ventures. Broadly, we contribute at the nexus of institutional theory and entrepreneurship by placing elite entrepreneurs and venture growth in the spotlight, and by highlighting how an institutional change that eases exit fosters a regenerative cycle of exit, founding and growth by attracting more capable entrepreneurs. Overall, we conclude that lowering barriers to exit via lenient bankruptcy laws encourages superior – and not just more – entrepreneurs to start firms.

Number of Pages in PDF File: 39

Keywords: entrepreneurship, institutions, Japan

JEL Classification: M13, O53, D21, D78, D92, H32


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Date posted: January 10, 2012 ; Last revised: December 5, 2016

Suggested Citation

Eberhart, Robert and Eesley, Charles E. and Eisenhardt, Kathleen M., Failure Is an Option: Institutional Change, Entrepreneurial Risk and New Firm Growth (October 20, 2016). Organization Science, 2016, Forthcoming; Rock Center for Corporate Governance at Stanford University Working Paper No. 111. Available at SSRN: https://ssrn.com/abstract=1982819 or http://dx.doi.org/10.2139/ssrn.1982819

Contact Information

Robert Eberhart (Contact Author)
Santa Clara University - Department of Management ( email )
500 El Camino Real
Santa Clara, CA California 95053
United States
408-554-4574 (Phone)
HOME PAGE: http://www.scu.edu/business/management/faculty/eberhart.cfm
Charles E. Eesley
Stanford University - Management Science & Engineering ( email )
473 Via Ortega
Stanford, CA 94305-9025
United States
(740) 236-4653 (Phone)
HOME PAGE: http://www.stanford.edu/~cee
Kathleen M. Eisenhardt
Stanford University - Management Science & Engineering ( email )
473 Via Ortega
Stanford, CA 94305-9025
United States
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