Building Dynamic Capabilities in Rapid Innovation-based Industries
Edited by Stuart Wall, Carsten Zimmermann, Ronald Klingebiel and Dieter Lange
Chapter 7: Growth Paths and Economic Success
7. Growth paths and economic success Thomas Hutzschenreuter1, Fabian Günther2 and Johannes Voll3 ABSTRACT This chapter examines the relationship between performance and continuity of the development of companies as well as the relationship between performance and signals leading to discontinuity. Using annual data of 387 companies over a ten-year period, we show that not growth but continuity of development has a positive influence on performance. Positive signals from good financial results can lead to inertia or hubris which can have a negative influence on performance. Whilst good financial results per se in one period are a source for success in later periods, an increase of financial results in one period is negatively related to the financial performance in a later period. Moreover, companies reacting moderately to negative signals retain continuity and tend to be more successful in the future than their overreacting counterparts. INTRODUCTION Both management research and business life show a strong interest in company growth and development. Numerous scholars have analyzed the phenomenon of company growth and development (Penrose 1959; Mansfield 1962; Dunne & Hughes 1994; Sutton 1997). Managers often name growth as a goal for their companies (Hall 1967; Whetten 1987; Brush, Bromiley and Hendrickx 2000; Mishina, Pollock & Porac 2004). Understanding factors influencing performance differences between firms is one, if not the most important topic of strategic management research (Bowman 1974; Barnett, Greve, and Park 1994; McGrath, MacMillan, and Venkataraman 1995). Strategic management scholars have analyzed performance differences from different angles, for example from the perspective of...
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