Predicting New Venture Survival and Growth: Does the Fog Lift?
25 Pages Posted: 29 Mar 2016
Date Written: March 17, 2016
This paper investigates whether new venture performance becomes easier to predict as the venture ages: does the fog lift? To address this question we primarily draw upon a theoretical framework, initially formulated in a managerial context by Levinthal (1991) that sees new venture sales as a random walk but survival being determined by the stock of available resources (proxied by size). We derive theoretical predictions that are tested with a 10-year cohort of 6579 UK new ventures in the UK. We observe that our ability to predict firm growth deteriorates in the years after entry — in terms of the selection environment, the ‘fog’ seems to thicken. However, our survival predictions improve with time — implying that the ‘fog’ does lift.
Keywords: Entrepreneurship, Firm growth, Survival analysis, Coefficient of determination, Selection environment, Gambler’s Ruin Theory
JEL Classification: L26, L25
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