Predicting New Venture Survival and Growth: Does the Fog Lift?

25 Pages Posted: 29 Mar 2016

See all articles by Alex Coad

Alex Coad

Waseda University

Julian Frankish

Independent

Richard Roberts

University of Birmingham

David Storey

University of Sussex - School of Business, Management and Economics

Date Written: March 17, 2016

Abstract

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

Suggested Citation

Coad, Alex and Frankish, Julian and Roberts, Richard and Storey, David, Predicting New Venture Survival and Growth: Does the Fog Lift? (March 17, 2016). Small Business Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2755472

Alex Coad (Contact Author)

Waseda University ( email )

1-104 Totsukamachi, Shinjuku-ku
tokyo, 169-8050
Japan

Julian Frankish

Independent ( email )

Richard Roberts

University of Birmingham ( email )

Edgbaston, Birmingham B15 2TT
United Kingdom

David Storey

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

Falmer, Brighton BN1 9SL
United Kingdom

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