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Diversification by young, small firms: the role of pre-entry resources and entry mistakes

  • Rui BaptistaEmail author
  • Murat Karaöz
  • João Correia Leitão
Article

Abstract

We investigate the determinants of young, small firm diversification by using longitudinal linked employer-employee data. We focus particularly on the role played by the sharing of managerial and qualified human resources, as well as market uncertainty and entry mistakes. We find that a small but significant proportion of young, small firms diversify in their first years. Firms with a greater proportion of managers and qualified human resources are more likely to diversify early, lending credence to the resource-based view of diversification. Firms entering volatile markets are more likely to diversify earlier as well, suggesting that entry mistakes and escape from uncertain, Schumpeterian environments also influence diversification. The inspection of survival patterns of diversified firms sheds further light on the importance of these two determinants of diversification.

Keywords

Diversification Start-ups Small business Firm resources Uncertainty Entry mistakes 

JEL Classification

L22 L26 M13 

Notes

Acknowledgements

The authors are indebted to the Portuguese Ministry of Labour and Social Solidarity for the access to the data used in the paper, and to participants in RENT, Academy of Management, and Strategic Management Society conferences for useful comments.

Funding information

Support for this research was provided by Fundação para a Ciência e a Tecnologia (FCT) through the Carnegie Mellon-Portugal Program (CMU-PT/Etech/0036/2008 and CMUP-ERI/TPE/0028/2013).

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Authors and Affiliations

  1. 1.Department of Engineering and Management and Centre for Management Studies (CEG-IST). Instituto Superior TécnicoUniversidade de LisboaLisbonPortugal
  2. 2.Centre for Management Studies (CEG-IST), Instituto Superior TécnicoUniversidade de LisboaLisbonPortugal
  3. 3.University of Beira Interior and Centre for Management Studies (CEG-IST), Instituto Superior TécnicoUniversidade de LisboaLisbonPortugal

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