Choosing Between Growth and Glory
Sharon Belenzon, Aaron K. Chatterji, Brendan Daley
Management Science · 2020 · Volume 66 · Issue 5
Abstract
Prior work has established that the financing environment can impact firm strategy. We argue that this influence can shape the earliest strategic choices of a new venture by creating a potential trade-off between two objectives: rapid growth and reaping the benefits of a positive reputation (glory). We leverage a simple reputation-building strategic choice—naming the firm after the founder (eponymy)—that is associated with superior profitability. Next, we argue via a formal model that the availability of/dependence on external financing can explain why high-growth firms are rarely eponymous. We find empirical support for the model’s predictions using a large data set of 1 million European firms. Eponymous firms grow considerably more slowly than similarly profitable firms. Moreover, eponymy varies in accordance with the firm’s financing environment in a pattern consistent with our model. We discuss implications for the literature on new-venture strategy. This paper was accepted by Bruno Cassiman, business strategy.
Keywords
new-venture strategy, entrepreneurship, firm growth, signaling, eponymy
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