Untangling the relationships among growth, profitability and survival in new firms

Frédéric Delmar; Alexander McKelvie; Karl Wennberg

doi:10.1016/j.technovation.2013.02.003

Untangling the relationships among growth, profitability and survival in new firms

Frédéric Delmar, Alexander McKelvie, Karl Wennberg

Whitman School of Management

Research output: Contribution to journal › Article › peer-review

144 Scopus citations

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.

Original language	English (US)
Pages (from-to)	276-291
Number of pages	16
Journal	Technovation
Volume	33
Issue number	8-9
DOIs	https://doi.org/10.1016/j.technovation.2013.02.003
State	Published - Aug 2013

Keywords

Firm evolution
Growth
Kirchoff
New firms
Survival

ASJC Scopus subject areas

General Engineering
Management of Technology and Innovation

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10.1016/j.technovation.2013.02.003

Cite this

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title = "Untangling the relationships among growth, profitability and survival in new firms",

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.",

keywords = "Firm evolution, Growth, Kirchoff, New firms, Survival",

author = "Fr{\'e}d{\'e}ric Delmar and Alexander McKelvie and Karl Wennberg",

note = "Funding Information: We are indebted to the special issue editor, two anonymous referees, Bo Carlsson, and participants at the Swedish Network for European Studies in Economics and Business (SNEE) May 22–25, 2012, for helpful comments. Financial support from the Swedish Research Council , the Ragnar S{\"o}derberg Foundation and Handelsbanken Research Foundations is gratefully acknowledged. All errors remain ours alone.",

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doi = "10.1016/j.technovation.2013.02.003",

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volume = "33",

pages = "276--291",

journal = "Technovation",

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T1 - Untangling the relationships among growth, profitability and survival in new firms

AU - Delmar, Frédéric

AU - McKelvie, Alexander

AU - Wennberg, Karl

N1 - Funding Information: We are indebted to the special issue editor, two anonymous referees, Bo Carlsson, and participants at the Swedish Network for European Studies in Economics and Business (SNEE) May 22–25, 2012, for helpful comments. Financial support from the Swedish Research Council , the Ragnar Söderberg Foundation and Handelsbanken Research Foundations is gratefully acknowledged. All errors remain ours alone.

PY - 2013/8

Y1 - 2013/8

N2 - 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.

AB - 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.

KW - Firm evolution

KW - Growth

KW - Kirchoff

KW - New firms

KW - Survival

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JO - Technovation

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Untangling the relationships among growth, profitability and survival in new firms

Abstract

Keywords

ASJC Scopus subject areas

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