The antecedents and impact of industry consultants on the future performance of new banks

Abstract

PurposeThe purpose of this paper is to examine the antecedents and performance outcomes when startup firms in the US banking industry hire industry consultants.Design/methodology/approachThis study uses a sample of prospective startup banks that applied for a new bank charter application in Florida between 1996 and 2005. Logistic regression, ordinary least squares or ordered logistic regression models were used to test hypotheses.FindingsAnalysis suggests complexity and regulatory change are factors in a founder’s decision to hire a consultant. Consultants have a positive impact on firm financial performance but not on a composite multifactor measure of performance. Additional analyses suggest the effectiveness of consulting assistance hinges on specific attributes of the consulting firm, but cumulative consulting experience is not one of these attributes.Research limitations/implicationsThis study focuses on the impact of consultants on new venture performance in a single industry using archival data. Additional research is likely needed to test the generalizability of the findings in other research contexts and examine motives beyond the financial ones investigated in this study.Practical implicationsResults suggest that hiring a consultant at startup can satisfy financial stakeholders, but, in a regulated industry, hiring a consultant at startup does not improve a composite, multifactor measure of performance that is important to industry regulators. When deciding whether to commit scarce resources to hiring consultants, founding teams should be clear which external stakeholder and which measure of performance they are seeking to improve.Originality/valueWhile the business advisory role of informal players such as family and friends and more formal players such as board members and federal, state or local governments have been well documented, little attention has been paid to the contributions of industry consultants in startup firms. These overlooked intermediaries play an important role in the successful launch of a new firm. This study examines when and why such advisors might create value for new firms.