Working Paper: NBER ID: w24901
Authors: Sharon Belenzon; Aaron Chatterji; Brendan Daley
Abstract: Prior work has established that the financing environment can impact firm strategy. We argue that this influence can shape the earliest strategic choices of a new venture by creating a potential tradeoff between two objectives: rapid growth and reaping the benefits of a positive reputation (glory). We leverage a simple reputation-building strategic choice, naming the firm after the founder (eponymy), that is associated with superior profitability. Next, we argue via a formal model that the availability of/dependence on external financing can explain why high-growth firms are rarely eponymous. We find empirical support for the model's predictions using a large dataset of 1 million European firms. Eponymous firms grow considerably more slowly than similarly profitable firms. Moreover, eponymy varies in accordance with the firm's financing environment in a pattern consistent with our model. We discuss implications for the literature on new venture strategy.
Keywords: eponymy; firm growth; financing environment; entrepreneurial strategy; reputation
JEL Codes: D21; D22; D23; D8; G41; M13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| External financing availability (G32) | Eponymy (B32) |
| Eponymy (B32) | Profitability (L21) |
| Eponymy (B32) | Growth rate (O42) |
| Non-eponymous firms (L29) | Growth rate (O42) |
| Eponymy (B32) | High-growth firms avoidance (D25) |
| Financial development (O16) | Differences in ROA between eponymous and non-eponymous firms (L25) |