Survival Chances of Newly Founded Business Organizations

TLDR

Human capital theory and organizational ecology identify founder characteristics, organizational attributes, and environmental conditions as key factors influencing the mortality of newly formed business organizations. The study tests basic hypotheses from these theories using retrospective data from a survey of 1,849 German business founders. The authors analyze retrospective survey data from 1,849 German business founders to examine these hypotheses. The analysis shows that organizational size, capital investment, and national market orientation are the strongest predictors of survival, while founder education, work experience, and industry expertise also have significant direct and indirect effects.

Abstract

Human capital theory and organizational ecology offer a comprehensive set offactors that influence the mortality of newly formed business organizations. Human capital theory identifies individual characteristics of the founder as important prerequisitesfor survival. Organizational ecology emphasizes organizational characteristics and environmental conditions. We test basic hypotheses derivedfrom both theories using retrospective data from a survey of 1,849 business founders in Germany. Organizational characteristics, especially number of employees and amount of capital invested, and organizational strategies, especially businesses aiming at a national market, are the most important determinants of business survival. The human capital characteristics of the founder, especially years of schooling and work experience and industry-specific experience, show strong direct and indirect effects as well.