“The liability of newness” revisited: Theoretical restatement and empirical testing in emergent organizations

Abstract

The mismatch between Stinchcombe's original propositions regarding “the liability of newness” and subsequent attempts to test those propositions suggests to us that the form and causes of the liability remain open to further investigation. Taking organizational emergence as a process comprising entrepreneurs engaging in actions that produce outcomes, we propose hypotheses about the social mechanisms of organizational construction involved in investing resources, developing routines, and maintaining boundaries. Distinguishing between initial founding conditions versus subsequent activities, our results not only confirm the liability of newness hypothesis, but also reveal a much higher risk of failure in organizations' early lifetime than rates found in previous research. Moreover, our results highlight the importance of entrepreneurs' continuing effort after their initial organizing attempts. Whereas only a few initial founding conditions lower the risk of failure, subsequent entrepreneurial activities play a major role in keeping the venture alive. Entrepreneurs contribute to whether a venture survives through raising more resources, enacting routines, and gaining increased public recognition of organizational boundaries. After controlling for financial performance, our results still hold. Based on our analysis, we offer suggestions for theory and research on organizations and entrepreneurship.