2018/02 | LEM Working Paper Series | ||||||||||||||||
Good Times, Bad Times: Innovation and Survival over the Business Cycle |
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Elena Cefis and Orietta Marsili |
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Keywords | |||||||||||||||||
firm survival; environmental jolts; financial crisis; organisational
adaptation; technological and non-technological innovation.
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JEL Classifications | |||||||||||||||||
L11; L25; D21; O32
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Abstract | |||||||||||||||||
High-potential new ventures are a source of economic growth, which
policy makers call upon in times of crisis when entrepreneurship is
seen as a remedy to economic downturn. Yet at these times new ventures
face intensified selection, and survival hinges on heterogeneous
capabilities. We examine how the innovative capabilities of new firms
created in the Netherlands in 2001-2006, affected their survival
likelihood before, during and after the 2007-2008 global financial
crisis. We estimate a piecewise exponential model linking survival
times, observed in the time period from 2001 to 2015, to longitudinal
innovation data from the CIS. Our results show that new ventures
innovating within two years from founding benefit of a long-term
adaptive survival premium during and after the crisis. This premium
and its duration over the stages of the crisis are contingent to the
form of innovation: technological innovations entail a more effective
and enduring premium, as compared to managerial innovations, which can
be even detrimental for survival. Our study has implications for
entrepreneurial management, by highlighting how the development of
innovative capabilities at founding, lays the foundations for
organisational adaptation and resilience in the longer
term. Furthermore, our results can inform a policy approach that aims
at sheltering from the storm of a financial crisis, those new ventures
that do possess the specific and necessary adaptive capabilities, but
that are also vulnerable because of the liabilities of newness and
smallness. Such an approach could help to maintain alive the process
of entrepreneurial experimentation during the crisis, and to boost
economic recovery, without dispersing precious resources.
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