Rebirth from the ashes: Failure events and new venture creation in Norway

Abstract

How do failure events affect subsequent new venture creation? The existing literature seems to point in two opposing directions. While the information perspective suggests that failure events undermine collective beliefs about market viability, the competition view implies that failures may foster entrepreneurship via easing competition in both factor and product markets. To address this question, we adopt an inductive approach and analyse registry data in Norway. Based on the firm-level microdata, we construct an industry-region-level marketspace to analyse the number of firm failures and new ventures in different markets. Results show that failures of existing firms generally lead to more venture creation in the same market, albeit being contingent on industry features. And such effect is mainly ‘pulled’ by product market vacuum, rather than ‘pushed’ by factor abundance. However, we also observe that ventures that are created following failure events are less likely to survive.