Abstract

Studies in strategic management, focused on environmental volatility, have largely concentrated on the influence of resource endowments (Kraatz & Zajac, 2001) and post-event actions (Tripsas & Gavetti, 2000) that create adaptation to change. This stream of research has largely been informed by the investigation of established companies reacting to environmental changes. A gap in this research is its applicability to young ventures and its concentration on organizational ex-post responses. There is little that discusses the ex-ante characteristics of organizations that might affect event severity.

This paper contributes to this stream of literature by proposing and testing a model of organizational characteristics that may moderate the value destroying effects of an adverse event in young ventures. In particular, we propose that the composition of the top management team is critical to shareholder interpretation of event severity. In so doing, we rely on insights from Signaling Theory (Spence, 1973) to examine the linkage between Top Management Team (TMT) characteristics and shareholder interpretation of event severity.

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