Growth paths and survival chances: An application of Gambler's Ruin theory

Alex Coad, Julian Frankish, Richard G. Roberts, David J. Storey

Research output: Contribution to journalArticle

94 Citations (Scopus)

Abstract

This paper links new firm survival with growth, with a focus on the patterns in firms' growth paths. We theorise a Gambler's Ruin framework by arguing that new firm performance is best modelled as a random walk process, but that survival is nonrandom and depends primarily on the stock of accumulated resources. A firm's resources are either there when the business begins or are generated by successful periods - 'wins'. The empirical section tracks, over six years, the sales and survival/non-survival of 6247 UK start-ups which all began trading in the same quarter of 2004. We do not find strong evidence in favour of a taxonomy of growth paths, because we observe that every possible growth path seems to occur with roughly equal probability. However, we observe that growth paths influence subsequent survival. Controlling for lagged size, we observe that longer lags of growth, and even start-up size, have significant effects on survival.

Original languageEnglish
Pages (from-to)615-632
Number of pages18
JournalJournal of Business Venturing
Volume28
Issue number5
DOIs
Publication statusPublished - 2013 Sep
Externally publishedYes

Keywords

  • Firm growth firm survival
  • Gambler's Ruin
  • Growth paths
  • Start-up size

ASJC Scopus subject areas

  • Business and International Management
  • Management of Technology and Innovation

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