Choosing between Growth and Glory

Sharon Belenzon, Aaron Chatterji and Brendan Daley

No 24901, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Prior work has established that the financing environment can impact firm strategy. We argue that this influence can shape the earliest strategic choices of a new venture by creating a potential tradeoff between two objectives: rapid growth and reaping the benefits of a positive reputation (glory). We leverage a simple reputation-building strategic choice, naming the firm after the founder (eponymy), that is associated with superior profitability. Next, we argue via a formal model that the availability of/dependence on external financing can explain why high-growth firms are rarely eponymous. We find empirical support for the model's predictions using a large dataset of 1 million European firms. Eponymous firms grow considerably more slowly than similarly profitable firms. Moreover, eponymy varies in accordance with the firm's financing environment in a pattern consistent with our model. We discuss implications for the literature on new venture strategy.

JEL-codes: D21 D22 D23 D8 G41 M13 (search for similar items in EconPapers)
Date: 2018-08
New Economics Papers: this item is included in nep-bec and nep-ent
Note: PR
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Citations: View citations in EconPapers (2)

Published as Sharon Belenzon & Aaron K. Chatterji & Brendan Daley, 2020. "Choosing Between Growth and Glory," Management Science, vol 66(5), pages 2050-2074.

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