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More Than Just a Number? The Conceptualization and Measurement of Firm Age in an Era of Temporary Organizations
Abstract
Despite the long history of research on firm age, recent theorizing on firm age has been rare. Meanwhile, significant shifts in the business landscape have altered how firms age and limited the age they are likely to reach. This article seeks to reinvigorate research on firm age by providing the first comprehensive review of the construct while considering how recent studies on time and organizing may be pertinent. We provide evidence that certain long-held assumptions about age have changed as organizations have become increasingly temporary and discuss what this means for organizational research going forward. We inductively structured our review along five themes in the literature: [1] research on age-dependence in organizational mortality rates; [2] research on age-related differences in firm processes or structures; [3] research enriching the theoretical understanding of firm age; [4] research that includes firm age as a control variable; and [5] methodological issues in the study of firm age. Across these five themes we identify important work, integrate what we know, identify gaps and inconsistencies, and offer recommendations for future research. While we believe the implications we discuss hold general value for a broad spectrum of research that includes firm age in either a primary or secondary manner, we derive more specific recommendations for two streams of research in particular, namely (1) research on entrepreneurial success and failure, which is directly tied to the liability of newness and hence firm age, and (2) the literature on temporary organizations, which is concerned with the intended and actual durations of firms.
... A U shape occurs when the dependent variable Y decreases with the dependent variable X to a certain point and then increases (Haans et al., 2016). In their literature review, Bakker and Josefy (2018) noted that the vast majority of the existing literature examined the linear effects of age. This is especially so when FA is used as a control variable. ...
... In general, many of the observed relationships between age and performance are either non-linear or U-shaped (Coad, Daunfeldt et al., 2018). Yet, as noted by Bakker and Josefy (2018), the majority of studies examine the effects of age on a firm's performance (cf. previous discussion) linearly, with a few exceptions (Coad et al., 2013;Loderer & Waelchli, 2010a). ...
... A firm cannot turn back the clock. However, theoretically, it is conceivable that FP evolves with age, given the evolution of the firm's structure (towards more or less rigidity or flexibility), reputation, and so on (Bakker & Josefy, 2018). The causal relationship therefore goes from age to performance and not vice versa. ...
Few studies have examined how the age of a firm can influence its economic performance over time. This study fills that gap by examining this issue from a large and unique sample of Vietnamese listed companies. Overall, we find evidence of a U-shaped relationship between firm age and firm performance (an initially negative effect of firm age on firm performance before the positive returns of firm age are realised). Our main findings are consistent with the liability of the ‘market newness’ hypothesis.
... Similarly, growth can be viewed as a consequence of learning. As firms grow and mature, they develop an established structure and legitimacy with stakeholders and formalise processes and rules in decision-making and managerial tasks (Bakker & Josefy, 2018;Josefy et al., 2015), impacting performance. ...
... The legitimacy, structure and formalisation of the firms are factors of the liabilities of newness and smallness identified by Stinchcombe (1965) and confirmed in subsequent studies (Aldrich & Auster, 1986;Balau et al., 2020;Vershinina et al., 2020;Wang et al., 2017). Thus, the consideration of such resources and capabilities follows previous articles and complements the view of how the liabilities of newness and smallness affect firm performance (Bakker & Josefy, 2018;Balau et al., 2020;Vershinina et al., 2020). The mediation between legitimacy, structure and formalisation will be tested, drawing on the former arguments. ...
The current literature examining factors related to age and size leading organisations to underperform is vast and has employed multiple theoretical lenses. However, the evidence is fragmented and mixed, and the causes for underperformance remain unclear. Building on empirical findings in 62 studies and a sample of 241 effect sizes covering 20 years of research, a meta-analysis with structural equation modelling was combined to extend the knowledge of the threats of age and size to firms’ performance. Formalisation, legitimacy and organisational structure were used to test the mediation between size and age in performance. These variables are pointed out as factors associated with the threats of age and size. The results provide evidence that structure and mainly formalisation and legitimacy play a key role in mitigating the effects of the liabilities of newness and smallness. The findings provide information on how managers should take action to keep their ventures alive.
... We controlled for firm size (measured as the natural logarithm of total revenues) because different activists may favor targeting bigger or smaller firms (Greenwood and Schor 2009). We controlled for firm age (measured as the number of years since a firm was founded) because younger firms are associated with lower legitimacy (Bakker and Josefy 2018), which may attract targeting by activist shareholders. Performance can also affect targeting decisions (Brav et al. 2010), leading us to include return on equity (measured as the ratio of operating income after depreciation to stockholder equity) and the market-to-book ratio (measured as the ratio of market value to book value). ...
Activist shareholders face a challenging task in preemptively identifying executives who they perceive might destroy shareholder value—before harm is done. We develop a framework where activist shareholders resolve this problem by forming attributions about executives’ intentions based on their displays of agentic values, which reflect independence and control. For activist shareholders, a strong display of independence can evoke concerns that an executive will act without the regulation of shareholder input, and a strong display of control can create concerns an executive will engineer governance provisions to their own benefit. As such, we hypothesize that above-average agentic value displays by CEOs increase the likelihood firms are targeted by shareholder activists. Extending our theory, we argue the positive effect that agentic value displays have on attracting shareholder activism is stronger when CEOs permit higher spending on corporate and stakeholder investment, both of which can exacerbate shareholder harm when executed poorly. We also posit that activism campaigns driven by CEOs’ agentic value displays will largely come from activist shareholders seeking to exert their own control over agentic-speaking CEOs. Using data on shareholder activism campaigns at US-based companies from 2003–2018, we find support for our hypotheses. We discuss multiple theoretical implications for research on corporate governance, stakeholder management, and investor relations.
... Firm Age -The effect of age on firm performance has been studied in several contexts (Coad et al., 2013(Coad et al., , 2016LiPuma et al., 2013;Sinha et al., 2019;Withers et al., 2011), but the results are inconclusive in this regard (Coad, 2018). Age is treated as an explanatory variable for firm performance due to the concept of liability of newness (Bakker and Josefy, 2018;Hughes et al., 2021;Rabbiosi and Santangelo, 2013). According to this concept, newer firms are in an adverse position compared to older firms due to the absence of experience, networks and credibility in the market (Abdesselam et al., 2004;Fortune and Shelton, 2014). ...
Purpose
The objective of the study is to analyse the impact of research and development investment on the firm performance of “small” scale firms vis-a-vis “medium”-scale firms.
Design/methodology/approach
The dataset comprised of a balanced panel of 486 research and development conducting Indian manufacturing small and medium enterprises, constructed for the period of 2006–2017. Fixed Effects, Random Effects Model and Hausmann test were used to analyse the determinants of firm performance in manufacturing small and medium enterprises in India.
Findings
It was found that from firms’ research and development (R&D) investments in terms of performance could be attained if simultaneously internationalisation and higher capital intensity could be achieved.
Practical implications
Managers could pay specific attention to the antecedents of firm performance and calibrate their R&D investment, internationalisation efforts and capital intensity simultaneously to achieve higher growth and productivity. For policymakers, the results provide an insight into how the firms in both categories could be differently incentivised, such that resources are better utilised.
Originality/value
The study analysed the determinants of firm performance in small and medium-sized firms at a disaggregate level as well as at a sectoral level using fixed effects, random effects and lagged effects to arrive at novel results, which have important implications for their competitiveness.
... In ecological processes, age is critical for organizational survival (Bakker & Josefy, 2018;Hannan & Freeman, 1984;Stinchcombe, 1965). The logic of liability of newness assumes that new organizations suffer from higher risk of mortality compared with established organizations (Stinchcombe, 1965). ...
Guided by the ecology theory, this study seeks to understand the interdependency between instrumental and identity resource domains that drives the formation of interorganizational networks. Corresponding to the conceptual distinction of instrumental and identity relations, this study examines the multiplex networks of strategic alliances and follower-followee relations. Eighteen years of alliances data of 150 U.S. technology companies were retrieved from the SDC Platinum database and matched with their current Twitter accounts to obtain the follower-followee network, and the two networks were evaluated with a multivariate exponential random graph model using XPNet. The results confirmed cross-network mechanisms at dyadic and triadic levels and showed that the liability of newness and niche similarity affected the formation of multiplex networks. Theoretical and practical implications of cross-domain multiplexity are discussed.
To investigate the routes toward profitable growth, this study partially replicates and extends the work of Davidsson et al. (2009) on firm growth–profitability dynamics with multi-industry data on over 66,000 Finnish firms. The results support prior findings on initial profitability being more important than initial growth for achieving high performance in both performance dimensions. Additional investigations on the role of firm age and size reveal further interesting dynamics: Very small young firms face fewer risks from growing at a low profitability level than other firms, and the benefits of firm size for future performance depend on the firm's current profitability. The results advance the understanding of the reasons and consequences of the different modes (i.e., profitable vs. non-profitable) of firm growth.
Purpose
Advertising intensity is treated either as a resource that allows firms to create competitive advantages (intangible asset view) or as an investment to build advertising resource (investment expense view). This current research supports the investment expense view. The authors do so by examining the moderating role of firm age (a proxy for knowledge) in the relationship between advertising intensity and performance as well as the influence of cultural communication styles on this moderation.
Design/methodology/approach
Secondary data were collected from multiple sources. With a sample of 262 companies from 10 countries (149 firms from high-context cultures and 113 firms from low-context cultures), ordinary least squares was used to estimate the regression coefficients to test the hypotheses. An instrumental variable approach with two-stage least squares estimates was used to address an endogeneity bias. Average industry advertising intensity excluding the focal firm was used as an instrumental variable.
Findings
The findings demonstrate that firm age significantly moderates the advertising intensity/performance relationship, but this moderation is only significant in high-context cultures. These findings imply that firms within high-context cultures must continually invest in advertising expenditures, while firms in low-context cultures may not need to do so to increase performance.
Practical implications
The results of this study provide insight into the debate of whether advertising expenditures boost performance, as well as provide international marketing managers with a clearer picture on how to invest in advertising within their respective markets.
Originality/value
A majority of the studies that examine the advertising intensity/performance link rely solely on the resource-based view. The authors utilize a multi-theoretical perspective to provide a fine-grained understanding of this relationship. Moreover, the authors apply the investment expense view to examine advertising intensity as an investment to build advertising resources, rather than a resource. This investment must be incorporated with the knowledge to properly employ the investment to develop advertising resources. Further, the authors find that firms expanding into high-context cultures must devote more effort into developing advertising capabilities to properly employ advertising resources than firms in low-context cultures.
This study investigates the firm size-innovation puzzle through distinguishing radical from incremental innovation, and examining the country-level context (i.e., university–industry collaboration in R&D and competition intensity) that the firm size-innovation relationship is contingent on. The meta-analysis including 162 studies with 112,639 firms reveals that firm size can simultaneously benefit for radical and incremental innovations, while the measurement of firm size using the non-personnel indices can result in significant difference between the firm size-radical innovation and firm size-incremental innovation. Additionally, it is found that the positive relationship between firm size and radical innovation increases when university–industry collaboration in R&D and competition intensity is stronger. This study quantitatively summarises the relationship between firm size and radical/incremental innovation and updates the correlations reported in established literatures. Drawing on awareness-motivation-capability perspective, it takes an essential and frontier step in testing the country-level context that can influence the effect of firm size on innovation.
We examine both mediation and moderation effects on the direct relationship between internationalization speed and firm performance in the context of small and medium-sized enterprises (SMEs). Building on prior studies that focus either on the direct speed–performance linkage or the moderating role played by knowledge, we suggest that an important source of performance variations is organizational learning. Grounded in the organizational learning perspective, we argue that firm strategies regarding speed and earliness of internationalization provide them with opportunities to develop their absorptive capacity, and thus enhance their performance. Using survey data from 343 SMEs in Australia and New Zealand, our empirical results suggest that absorptive capacity is associated with internationalization speed in a reversed U-shape relationship and that in turn absorptive capacity mediates the direct speed–performance relationship. Moreover, this mediating effect is moderated by earliness of internationalization. By demonstrating the moderated mediating effect of absorptive capacity as a novel mechanism to achieving superior performance, we enhance the understanding of how firms succeed internationally.
Many studies argue that the continual creation of new ideas by small, young, entrepreneurial firms steadily destroys the competitive positions of their larger, older, and more established rivals. Despite this attention, empirical results in this tradition are exceedingly fragile. This paper proposes three reasons for the empirical inconsistencies in the literature--that small and large firms differ in the extent to which they may offer efficient incentive contracts, that small and large firms differ in their stock of technological experiences, and that small and large firms differ in their ability to efficiently utilize internal and market contracts. The paper suggests that the instability in existing work is at least partially due to the failure of prior work to fully capture the joint and interactive effects associated with these three differences. Results from a ten-year study of 523 semiconductor firms indicate that the benefits of technological experience developed internally and of technological experience accessed via co-development partners diminish as a firm increases in size. In contrast, the benefits of experiences accessed via production-sourcing contracts are strengthened as a firm increases in size. These results are broadly consistent with the notion that differences in the relative incentives and abilities of entrepreneurial and established firms affect their innovative activity.
We add to neglected research on how venture resources and founder experience outside the home country interplay in facilitating venture creation speed. In particular, we investigate how returnee entrepreneurs influence the role of venture resources in the speed of entrepreneurial entry. Using a novel sample of 388 new ventures covering a range of technologies in China, we find that returnees from abroad are slower in new venture entry in the home country, compared with homegrown entrepreneurs. At the same time, ventures with innovative technology and backed by foreign capital are slower to set up due to higher levels of liability of newness and liability of foreignness. However, when these firms have a returnee founder who can leverage their experience with foreign resources and technological knowhow, such negative effects on entry speed are significantly mitigated. We discuss implications for further research and practice.
The article presents the results of research on first-mover advantage and strategies which can be employed by follower firms in order to obtain compensatory competitive advantages. An overview of related previous studies is provided, along with details of the research protocol, which involved data analysis of information on the 50 largest management consulting firms between 1989 and 1999, derived from the U.S. Trademark database. It was found that organizational innovation was related to issues such as imitation and market expectations.
Prior research on age dependence describes entire populations as exhibiting a liability of newness, adolescence, or obsolescence. By comparison, this study considers how strategy affects aging. A study of firms in the U.S. personal computer industry reveals that age dependence varied not only by strategy, but also across outcomes.
Forthcoming at The Academy of Management Annals: http://tx.ag/survival
Understanding why some firms survive while others fail is a central question of strategic management research. Indeed, many consider survival the quintessential indicator of firm performance. As such, survival research is vast, but also frustratingly disjointed across several thematic areas in the organizational literature. In this review of firm survival and failure, we organize this research across three stages of firm development: new ventures, single-business units and diversified firms. We therefore add order to the diverse survival literatures and clarify how scholars’ conceptualizations of survival differ. Notably, different streams’ conceptualization of survival reflect a multi-faceted construct including three dimensions: operations, ownership and solvency. Identifying these dimensions provides a lens that adds clarity when reviewing the literature as well as important richness to better situate future work on survival and failure. In addition, we highlight outdated assumptions prevalent in this research, which have further limited the theoretical development of survival and failure. This review also sheds light on the timely question: “who benefits or suffers from survival and failure?”, as scholars and policymakers alike seek to understand factors that promote entrepreneurial activity and grapple at the other end of the spectrum with “too big to fail” policies.