Innovation, growth and survival

The purpose of this paper is to explain why the likelihood of survival and post-entry growth rates vary systematically from industry to industry. In particular, the post-entry performance of new firms is linked to the underlying technological conditions in an industry. In industries where innovative activity, and especially the innovative activity of small firms, plays an important role, the likelihood of new entrants' surviving over a decade is lower than in industries where innovative activity is less important. At the same time, those entrants that are able to survive exhibit higher growth rates. In addition, the conditional likelihood of surviving an additional two years for entrants that have already survived the first few years is actually greater, and not lower, in highly innovative industries. The evidence therefore suggests that a highly innovative environment exerts a disparate effect on the post-entry performance of new entrants. Those new firms that are able to adjust and offer a viable product apparently experience higher rates of growth and a greater likelihood of survival. But overall, entrants and certainly new firms that are not able to adjust and produce a viable product are confronted by a lower likelihood of survival in highly innovative environments.