The Liability of Volatility and How it Changes Over Time Among New Ventures
Erik Lundmark, Alex Coad, Julian S. Frankish, David J. Storey
Entrepreneurship Theory and Practice · 2020 · Volume 44 · Issue 5
Abstract
This article theorizes how short-term revenue volatility affects new venture viability and how such volatility develops over time. Tracking the bank accounts of 6,578 new ventures over a 10-year period, we find that, even after controlling for a range of other factors, short-term revenue volatility is a strong predictor of venture exit. Although short-term revenue volatility is associated with the depletion of buffer resources and financial default, surviving ventures do not, on average, decrease their short-term revenue volatility over time. However, short-term revenue volatility decreases at the cohort level due to higher exit rates of volatile ventures.
Keywords
liability of newness, adaptation, selection, evolutionary theory, liability of smallness
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