Unpacking Firm Exit at the Firm and Industry Levels: The Adaptation and Selection of Firm Capabilities

Abstract

Abstract Evolutionary theory of business activity studies how firms are selected out of environments in which they do not fit, but most existing work underemphasizes the distinction between acquisition and dissolution as selection processes. We address this gap with a multilevel analysis that investigates how managerial and functional organizational capabilities affect whether struggling firms exit by acquisition or dissolution. We demonstrate that managerial and functional capabilities have heterogeneous effects on selection processes, with managerial capabilities having particularly strong influence on acquisition exits by struggling firms. The work provides a bridge between adaptation and selection views on organizational change; exit by dissolution represents selection of both firms and capabilities, while exit by acquisition represents firm selection but capability adaptation. Copyright © 2011 John Wiley & Sons, Ltd.