While resources are fundamental to all organizational life, implicitly they are often assumed to have a positive effect on firm outcomes. Rarely is the question asked whether an abundance of resources can actually have negative effects on the firm. In this study, we leverage a panel dataset of 4928 new firms followed over their first 4 years to explore the potentially countervailing effects of two canonical resources at founding—human capital as reflected by number of founders and financial capital as reflected by founding equity—on new venture performance outcomes. Interestingly we find that these canonical resources actually have little effect on mean performance but instead have the effect of increasing performance variability. This variability in turn increases the incidence of performance outcomes of extreme nature such as failure or fund raising. This nuance suggests that resource abundance can in fact be a mixed blessing, sometimes positive and sometimes negative. In particular, it hints at a resource curse effect that would not have been deduced if only considering mean effects and suggests the need to reexamine our approach to theory building to more fully account for how variability can help predict extreme outcomes.
Cavarretta, Fabrice L. and Furr, Nathan R.
"TOO MUCH OF A GOOD THING? RESOURCE EFFECTS IN NEW VENTURES,"
Frontiers of Entrepreneurship Research:
3, Article 1.
Available at: http://digitalknowledge.babson.edu/fer/vol31/iss3/1