Organizational Mortality: The Liabilities of Newness and Adolescence

TLDR

The study examines Stinchcombe’s liability of newness hypothesis, which posits higher failure risks for young organizations compared with older ones. Its goal is to test this hypothesis and introduce a liability of adolescence concept that proposes an inverted U‑shaped risk pattern. The authors estimate a log‑logistic rate model using West German business organization data to support the liability of adolescence. The analysis shows that the liability of newness hypothesis poorly describes West German business mortality, whereas mortality peaks between one and fifteen years after founding, supporting the liability of adolescence and extending interpretations of the liabilities of smallness and legal form. The study was funded by the Deutsche Forschungsgemeinschaft (grant Zi 207/5‑1) and supported by the Munich Chamber of Commerce, with acknowledgments to reviewers and editors.

Abstract

This research has been supported by the Deutsche Forschungsgemeinschaft with grant Zi 207/5-1 (Project Leader: Prof. Dr. Rolf Ziegler). Thanks to the Munich Chamber of Commerce, which provided the data. Helpful comments, which greatly improved the quality of this paper, were given by Glenn Carroll, Michael Hannan, Peter Preisend6rfer, Thomas Voss, Gabriele Wiedenmayer, the editor of this journal, and especially by four anonymous referees. This article contains a theoretical discussion and an empirical test of Stinchcombe's liability of newness hypothesis, which assumes higher risks of failure for young organizations compared with old ones. It is shown that this hypothesis is not a good representation of the mortality hazard of West German business organizations. Therefore, we introduce the concept of a liability of adolescence, which proposes an inverted U-shaped risk pattern. It is shown that mortality, depending on the initial resource endowments of a firm, peaks between one and fifteen years after founding. From this perspective, extended interpretations of the liabilities of smallness and legal form are given. These arguments are-well supported by a log-logistic rate model estimated with our data.