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

Frédéric Delmar, Alexander McKelvie () and Karl Wennberg ()
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Alexander McKelvie: Syracuse University, Postal: Department of Entrepreneurship & Emerging Enterprises Whitman School of Management, Syracuse University , 721 University Ave. , Syracuse, NY 13244 USA

No 205, Ratio Working Papers from The Ratio Institute

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 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: Entrepreneurship; New Firms (search for similar items in EconPapers)
JEL-codes: L22 L26 M13 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2013-06-13
New Economics Papers: this item is included in nep-cse, nep-ent and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (68)

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