Entrepreneurial Entropy: A Resource Exhaustion Theory of Firm Failure from Entrepreneurial Orientation

Nazha Gali, Mathew Hughes*, Robert E. Morgan, Catherine L. Wang

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

Entrepreneurial orientation (EO) can generate substantial gains and losses, exhausting firm resources and straining a firm’s ability to sustain its activities. We develop and test a resource exhaustion theory of firm failure, conceptualizing conditions under which EO increases the risk of firm failure by generating unsustainable amounts of entrepreneurial entropy. Using panel data on 804 large U.S. high-technology firms over 18 years, we find that EO increases the risk of firm failure, which is mediated by the lack of organizational resource slack. An abrupt change in EO increases the risk of firm failure, especially among underperforming firms.
Original languageEnglish
JournalEntrepreneurship: Theory and Practice
Volume48
Issue number1
Pages (from-to)141-170
Number of pages30
ISSN1042-2587
DOIs
Publication statusPublished - Jan 2024

Bibliographical note

Published online: 27 February 2023.

Keywords

  • Resource exhaustion theory
  • Entrepreneurial orientation
  • Firm failure
  • Entropy
  • Change in EO
  • Organizational resource slack
  • Liquidity
  • Underperformance
  • Survival bias
  • Asset specificity
  • Pacing

Cite this