Resources, capabilities, liability of newness and corporate failure: An empirical study

This paper, through comparing the determinants between corporate failures and survivors, identifies factors in relation to liability of newness that cause corporate failures. Liability of newness has attracted research attention as a significant attribute for organizational failure, in particular, in the early studies of organizational ecology. However, scarce research has been done on corporate failure and liability of newness from a comparative perspective, i.e., through comparing corporate failures and survivors. This paper develops a model and a series of hypotheses based on the characteristics of liability of newness, resource-based-view and capability theories. In light of this model, it compares corporate failures and survivors, and more importantly, illustrates the correlation between internal resources, capabilities and corporate failure. Our analysis of data from 811 random samples taken from the Database of Industrial Enterprise of China suggests that the deficiency of internal resource and capability are likely to induce failure. In order to accelerate firm survival rate, we make some recommendations for improving new venture's resources capabilities and liability of newness.