The persistence and dynamics of new venture growth
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The persistence and dynamics of new venture growth Yan Chen & Michael Song
Accepted: 5 October 2020 # Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract Extensive research has suggested that new ventures’ growth rates lack persistence. However, existing studies tend not to differentiate between positive and negative growth rates or examine their respective persistence and dynamics. Building on performance feedback theory, we show that positive and negative growth rates exhibit different dynamics over time. Especially, negative growth rates are less likely to persist and more likely to reverse than positive ones. Furthermore, firm size and team size influence the persistence—or the lack of thereof—of both positive and negative growth rates. Specifically, new ventures that are smaller, as well as those managed by larger teams, are more likely to maintain positive growth and reverse negative growth, relative to their respective counterparts. Overall, this study suggests that positive and negative growth rates differ in their persistence and that new ventures can shape the dynamics of both positive and negative growth.
Keywords New venture growth . Growth persistence . Growth dynamics . Performance feedback . Dynamic panel data model
Y. Chen School of Business, Stevens Institute of Technology, 1 Castle Point Terrace, Hoboken, NJ 07030, USA e-mail: [email protected] M. Song (*) School of Economics and Management, Xi’an Technological University, WeiYang District, Xi’an City, China e-mail: [email protected]
JEL classification L26
1 Introduction Extensive research has suggested that growth rates lack persistence over time (e.g., Chan et al. 2003; Daunfeldt and Halvarsson 2015; Hölzl 2014; Coad et al. 2013). In general, some firms may achieve high growth in some periods, but high growth tends not to persist over time. Furthermore, high growth in one period may turn into low or negative growth in future periods, as firms may run into problems and limits caused by high growth (Goddard et al. 2002; Oliveira and Fortunato 2006; Bottazzi et al. 2002). Although it is well-known that growth rates lack persistence, existing studies tend not to differentiate between positive and negative growth rates, assuming that they exhibit similar dynamics. However, there are good reasons to believe that positive and negative growth may show different dynamics over time and that such differences may have important implications for new venture growth. Furthermore, a deep understanding of the differences between positive and negative growth may help identify factors that can increase the persistence of positive growth but reduce the persistence of negative one. Recent developments in performance feedback theory offer a new perspective on the persistence and dynamics of new venture growth (Greve 2003; Shinkle 2012; Bromiley and Harris 2014; Posen et al. 2018). According to performance feedback theory, when a new venture experiences negative growth, its size falls below
Y. Chen, M. Song
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