Network Dynamics of New Firm Formation

Abstract

This chapter looks at differences between the founding processes of start-up firms with state-embedded spin-offs using the development of post-Soviet commodity exchange markets as a representation. It focuses on the extensiveness of ties among founders and suggests that social ties are key to organizational outcomes of new firms in two ways. Firstly, the social structure of founding networks regulate the range of individual action as the stronger the ties among the actors, the narrower their latitude for autonomous action. The more tight-knit or dense the ties in a network, the greater the autonomy and freedom of individual action are constrained. Secondly, the diversity of founders' ties shape the institutional embeddedness of the new firm that they create. The discussion of the model of founding network density and its effects on performance follows a brief background of the emergence of new firms in Russia.