The Survival of Newly Incorporated Companies and the Impact of Founding Director Characteristics
47 Pages Posted: 18 Sep 2011
Date Written: September 17, 2011
The founding directors of newly incorporated companies bring social capital (reputation, networks, business relationships) and human capital (task-related, professional and director experience) to a new venture and founding boards vary in degree of heterogeneity (size, diversity, turnover). This paper is exploratory and seeks to uncover new insights relating to the link between the characteristics of the board of directors of newly incorporated firms and the likelihood of company survival in the early years. Hypotheses are tested within a discrete-time duration-dependent (competing risks) hazard model which controls for macro-economic conditions and likely recursive relationships. Analyses of sub-sample marginal effects are used to confirm the magnitude and economic significance of our results. The study utilizes a unique and considerable dataset of over 5.8 million company-year observations (near population) of newly incorporated companies and early stage board characteristics. Results suggest that the background, experience, networking, diversity and composition of new boards are important in determining the trajectory of success/failure of new firms.
Keywords: Business failure, firm survival, corporate insolvency, board of directors, social and human capital, new ventures
JEL Classification: G24, G32, G33, C25, C24
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