Financial Resources and New Venture Growth: Effects of Venture Origin and Institutional Environment

Abstract

Financial resources are generally known to have a positive impact on new venture growth, but various conditions may play complex roles on this relationship. This study investigated the roles of venture origin and characteristics of institutional environment in the context of the relationship between financial resources and growth of new ventures. We posit that financial resources are more critical for independent ventures (IVs) compared to corporate ventures (CVs), because IVs have more discretion and greater incentives for growth and leading them to use financial resources more extensively than CVs. Furthermore, we posit that financial resources are more critical for IVs’ growth in market-oriented institutional environment than in government-driven institutional environment, because market-oriented institutional environment requires more discretional resource management for IVs and thus financial resources should play more critical roles in market-oriented institutional environment. We find broad support for these arguments in a comprehensive data set representing South Korean new venture firms from 1991 to 2009.