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Equity-based Financial Slack and New Venture Performance: Evidence from matched single-founder ventures

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  • Morgan, Horatio M.

Abstract

This paper examines whether equity-based financial slack in the form of relatively high levels of founding equity will systematically hurt new venture performance. Drawing on data on 445 single-founder new ventures over the period 2004-2007, it uses the propensity score matching method to estimate the average effect of equity-based financial slack on new venture performance. It finds a negative and statistically significant average effect. This implies that single-founder new ventures that started out with relatively high levels of founding equity subsequently had a relatively low rate of profitability on average. The underlying mechanisms behind this empirical finding are explored, and the implications for the development of existing theory and practice are discussed.

Suggested Citation

  • Morgan, Horatio M., 2013. "Equity-based Financial Slack and New Venture Performance: Evidence from matched single-founder ventures," MPRA Paper 50291, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:50291
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    More about this item

    Keywords

    Financial slack; Founding equity; New venture; Propensity score matching.;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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