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Resource Dependence and the Exits of Young Firms

Resource Dependence and the Exits of Young Firms Abstract Which entrepreneurial firms exit by merger or sale, and which exit by closing? We draw on resource dependence theory in order to explore how new venture dependencies on the founder and industry affect the type of firm exit. While previous researchers have concluded that early stage firms rely on the human capital of the entrepreneur to survive and thrive, we suggest that certain dependencies can act as barriers to exit through a merger or a sale. Likewise, we suggest that industries that are low tech and industries that experience high firm turnover create dependencies on the local market, and exit is less likely by a sale or a merger. We test our model using binary logistic regression on a 2012 sample from the Kauffman Firm Survey of 451 firms founded in 2004. We find that firms that are operated as sole proprietorships and firms that are operated out of the primary owner’s home are significantly, negatively related to exit by a merger or a sale. Firms operating in high-tech industries are significantly, positively related to exit by a merger or a sale. These findings hold even when controlling for the size, performance, and competitive advantage of the exiting firms. Our findings offer preliminary evidence that resource dependencies affect exit outcomes. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Entrepreneurship Research Journal de Gruyter

Resource Dependence and the Exits of Young Firms

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Publisher
de Gruyter
Copyright
Copyright © 2014 by the
ISSN
2194-6175
eISSN
2157-5665
DOI
10.1515/erj-2013-0063
Publisher site
See Article on Publisher Site

Abstract

Abstract Which entrepreneurial firms exit by merger or sale, and which exit by closing? We draw on resource dependence theory in order to explore how new venture dependencies on the founder and industry affect the type of firm exit. While previous researchers have concluded that early stage firms rely on the human capital of the entrepreneur to survive and thrive, we suggest that certain dependencies can act as barriers to exit through a merger or a sale. Likewise, we suggest that industries that are low tech and industries that experience high firm turnover create dependencies on the local market, and exit is less likely by a sale or a merger. We test our model using binary logistic regression on a 2012 sample from the Kauffman Firm Survey of 451 firms founded in 2004. We find that firms that are operated as sole proprietorships and firms that are operated out of the primary owner’s home are significantly, negatively related to exit by a merger or a sale. Firms operating in high-tech industries are significantly, positively related to exit by a merger or a sale. These findings hold even when controlling for the size, performance, and competitive advantage of the exiting firms. Our findings offer preliminary evidence that resource dependencies affect exit outcomes.

Journal

Entrepreneurship Research Journal – de Gruyter

Published: Oct 1, 2014

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