Untangling the Relationships Among Growth, Profitability and Survival in New Firms

Technovation, 2013

53 Pages Posted: 25 Sep 2013

See all articles by Frédéric Delmar

Frédéric Delmar

Lund University School of Economics and Management; EM Lyon (Ecole de Management de Lyon); Research Institute of Industrial Economics (IFN)

Alexander McKelvie

Syracuse University - Whitman School of Management

Karl Wennberg

Linkoping University - Institute for Analytical Sociology (IAS)

Date Written: January 24, 2013

Abstract

The performance of new firms is important for economic development but research has produced limited knowledge about the key relationships among growth, profitability, and survival for new firms. Based on evolutionary theory, we develop a model about how new firms resolve uncertainty about their ability to prosper in a market by monitoring changes in profitability. Our model predicts selection pressures to weed out underperforming firms and learning in order to allow survivors to improve performance and grow. We test our theory using a unique panel of knowledge-intensive new firms in Sweden. We find strong support for the notion that profitability enhances both survival and growth, and growth helps profitability but has a negative effect on survival. Implications are discussed.

Suggested Citation

Delmar, Frédéric and McKelvie, Alexander and Wennberg, Karl, Untangling the Relationships Among Growth, Profitability and Survival in New Firms (January 24, 2013). Technovation, 2013. Available at SSRN: https://ssrn.com/abstract=2330199

Frédéric Delmar

Lund University School of Economics and Management ( email )

P.O Box 7080
Lund
Sweden

EM Lyon (Ecole de Management de Lyon) ( email )

23 Avenue Guy de Collongue
Lyon, Ecully 69134
France
+33 (0)4 78 33 70 18 (Phone)

HOME PAGE: http://www.em-lyon.com/france/professeurs/delmar/index.aspx

Research Institute of Industrial Economics (IFN)

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Alexander McKelvie

Syracuse University - Whitman School of Management ( email )

721 University Avenue
Syracuse, NY 13244-2130
United States

Karl Wennberg (Contact Author)

Linkoping University - Institute for Analytical Sociology (IAS) ( email )

Norrköping, 601 74
Sweden

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