New Venture Survival and Growth: Does the Fog Lift?

IEB Working Paper No. 2013/036

44 Pages Posted: 15 Mar 2014

See all articles by Alex Coad

Alex Coad

CENTRUM Catolica Graduate Business School

Julian Frankish

Independent

Richard Roberts

Independent

David Storey

University of Sussex - School of Business, Management and Economics

Date Written: December 3, 2013

Abstract

Does our ability to predict the performance of new ventures improve in the years after start-up? We investigate the growth and survival of 6247 new ventures that are tracked using the customer records at Barclays Bank. We put forward Gambler’s Ruin as a simple theory for understanding new venture growth and survival. Gambler’s Ruin predicts that the R2 remains low for growth rate regressions, but that the R2 increases in the years since start-up for survival regressions. The Nagelkerke R2 obtained from growth rate regressions decreases significantly in the years after start-up, which suggests that the fog gets thicker with respect to growth. When we focus only on firms surviving until the end of the period, however, there is no visible change in the R2 over time. In contrast, the Nagelkerke R2 of survival regressions increases in the years after start-up. Interestingly, a blip in year 5 suggests that macroeconomic factors may have a strong effect on the amount of ‘fog’.

Keywords: entrepreneurship, firm growth, survival, exit probability, coefficient of determination, selection environment, Gambler’s Ruin theory, Strategic Entrepreneurship, cohort study

JEL Classification: L26, L25

Suggested Citation

Coad, Alex and Frankish, Julian and Roberts, Richard and Storey, David, New Venture Survival and Growth: Does the Fog Lift? (December 3, 2013). IEB Working Paper No. 2013/036, Available at SSRN: https://ssrn.com/abstract=2408027 or http://dx.doi.org/10.2139/ssrn.2408027

Alex Coad (Contact Author)

CENTRUM Catolica Graduate Business School ( email )

1801 Universitaria Avenue
San Miguel
Lima, Lima Lima32
Peru

Julian Frankish

Independent ( email )

Richard Roberts

Independent ( email )

David Storey

University of Sussex - School of Business, Management and Economics ( email )

Falmer, Brighton BN1 9SL
United Kingdom

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