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Financial munificence, R&D intensity, and new venture survival: critical roles of CEO attributes

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Plain English Summary While capital is essential for new ventures to innovate and survive, is having more of it always good? Our research shows “No” because more money may “spoil the child” by reducing the benefits that new ventures enjoy from R&D investment. We analyzed 791 new technology ventures across six years and found evidence of a side effect of munificent financial resources, such that when ventures have high levels of financial munificence, they garner fewer survival benefits from increasing R&D. This side effect is weakened when ventures have CEOs who are more experienced, highly educated, or female. These findings extend previous research on the limitations of financial munificence by showing its negative moderating effect on the R&D–survival relationship. For entrepreneurs and venture capitalists in the industry, we advise caution regarding the role of abundant financial resources in new ventures.
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https://doi.org/10.1007/s11187-021-00592-4
Financial munificence, R&D intensity, andnew venture
survival: critical roles ofCEO attributes
AricXuWang· KevinZhengZhou
Accepted: 21 December 2021
© The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature 2022
reducing the benefits that new ventures enjoy from
R&D investment. We analyzed 791 new technol-
ogy ventures across six years and found evidence
of a side effect of munificent financial resources,
such that when ventures have high levels of finan-
cial munificence, they garner fewer survival benefits
from increasing R&D. This side effect is weakened
when ventures have CEOs who are more experienced,
highly educated, or female. These findings extend pre-
vious research on the limitations of financial munifi-
cence by showing its negative moderating effect on
the R&D–survival relationship. For entrepreneurs and
venture capitalists in the industry, we advise caution
regarding the role of abundant financial resources in
new ventures.
Keywords Financial munificence· R&D intensity·
New venture survival· Behavioral theory of the firm·
CEO attributes
JEL classification D21· L26· M13· O3
Adversity reveals genius; fortune conceals it.
Horace, ancient Roman poet (65–8 BC).
1 Introduction
Financial munificence is defined as the degree
to which firms are relatively abundant in or less
Abstract Although financial resources are criti-
cal to new ventures, is having more of them always
a good thing? Intrigued by industry observations and
building on behavioral research into the limitations of
munificent resources, we argue that financial munifi-
cence can have a negative moderating effect on the
impact of R&D investment on venture survival. We
further propose that three CEO attributes (i.e., work
experience, education, and gender) can mitigate this
negative moderating effect. Analyses of a six-year
longitudinal dataset of 791 new technology ventures
provide strong support for our hypotheses. We con-
tribute to the behavioral research on how resource
munificence matters for new ventures by examining
the indirect downside of financial munificence and
demonstrating how certain CEO attributes can miti-
gate this effect.
Plain English Summary While capital is essen-
tial for new ventures to innovate and survive, is hav-
ing more of it always good? Our research shows
“No” because more money may “spoil the child” by
A.X.Wang
School ofBusiness, Sun Yat-sen University, Guangzhou,
China
e-mail: wangx739@mail.sysu.edu.cn
K.Z.Zhou(*)
Faculty ofBusiness andEconomics, The University
ofHong Kong, Pokfulam, HongKong
e-mail: kevinz@hku.hk
Small Bus Econ (2022) 59:1641–1659
/ Published online: 10 January 2022
Content courtesy of Springer Nature, terms of use apply. Rights reserved.
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