Growth and survival: The moderating effects of local agglomeration and local market structure

One of the central explanations of the high failure rates of de novo entrants is the liability of smallness. As a corollary, most prior literature has suggested that firms should experience survival benefits from growth. In this paper, we argue that survival benefits need to be balanced against the...

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Bibliographic Details
Published in:Strategic management journal 2016-03, Vol.37 (3), p.541-564
Main Authors: Pe'er, Aviad, Vertinsky, Ilan, Keil, Thomas
Format: Article
Language:English
Subjects:
agglomeration
Competition
de novo
growth
Small & medium sized enterprises-SME
Strategic management
survival
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Summary:One of the central explanations of the high failure rates of de novo entrants is the liability of smallness. As a corollary, most prior literature has suggested that firms should experience survival benefits from growth. In this paper, we argue that survival benefits need to be balanced against the potential cost of rapid growth, and they are contingent upon the structure of the environment. We predict a curvilinear relationship between an entrant's growth rate and failure, and argue that the relationship is contingent upon the local agglomeration of economic activity and the local structure of competition. We test and find support for our predictions using firm-level longitudinal data of all de novo entrants into the Canadian manufacturing sector between 1984 and 1998.
ISSN:0143-2095
1097-0266
DOI:10.1002/smj.2331