The Effect of the Innovative Environment on Exit of Entrepreneurial Firms

Longitudinal data are used to examine how knowledgeshapes the innovative environment of an entering firm and to determine howdifferent environments affect entrant survival. After a review of relevantliterature, it is hypothesized that entrants with a knowledge advantage and ahigh number of innovation opportunities are less likely to exit than otherentrants. A second hypothesis suggests that entry size moderates the relationshipbetween the innovative environment and the likelihood of exit in such a waythat an aligned innovative environment (i.e., one in which knowledge exists intandem with innovation opportunities) is more crucial for small entrants thanfor large entrants. Data on the entry and exit of 3,431 firms in 33 manufacturing industries areused to test the hypotheses. Drawn from the Thomas Register of AmericanManufacturers and covering the period between 1908 and 1991, the datasupport both hypotheses. The results demonstrate how the knowledge intensity ofthe industry and scale of entry combine to determine the likelihood of entrantsurvival. (SAA)