Patterns of performance in new firms : estimating the effects of absorptive capacity

University dissertation from Stockholm : Economic Research Institute, Stockholm School of Economics (EFI)

Abstract: New firms are crucial for economic growth and development, especially in the knowledge-intensive service and manufacturing industries that compose an increasing portion of developed economies. As many new firms fail and performance varies widely for surviving firms, studying new firm entry and pre-formation processes is necessary but not sufficient to create increased understanding of the important contribution of new firms to economic growth. In order to better understand and possibly predict economic development we must also understand the drivers and dynamic of new firm survival and performance.Absorptive capacity is an established firm-level capability theory that explains sustained firm performance through the interaction of internal capabilities and competencies and the access and assimilation of external knowledge and information. However, absorptive capacity was mainly developed by studying established firms. In this dissertation I develop new measures of absorptive capacity suitable for empirical research on new micro firms; specifically using human capital as a proxy for the knowledge acquisition component and organizational tenure to represent the knowledge assimilation and exploitation component of absorptive capacity.Developing and testing a conceptual model of new firm performance including these measures on a panel dataset of knowledge-intensive new firms in Sweden 1995-2002, I find that absorptive capacity is a useful theory to explain several aspects of new firm terminations, acquisitions, and profitability. In developing and testing these new measures, this dissertation provides theoretical and methodological contributions to the empirical entrepreneurship literature for the benefit of researchers, policy-makers, and industry practitioners with an interest in new firm survival and performance.