SURVIVAL OF THE FITTEST - ENTREPRENEURIAL HUMAN-CAPITAL AND THE PERSISTENCE OF UNDERPERFORMING FIRMS

The model developed here explains why some firms survive while other f irms with equal economic performance do not. We argue that organizatio nal survival is not strictly a function of economic performance but al so depends on a firm's own threshold of performance. We apply this thr eshold model to the study of new venture survival, in which the thresh old is determined by the entrepreneur's human capital characteristics, such as alternative employment opportunities, psychic income from ent repreneurship, and cost of switching to other occupations. Using a sam ple of 1,547 entrepreneurs of new businesses in the U.S., we find stro ng support for the model, The findings suggest that firms with low thr esholds may choose to continue or survive despite comparatively low pe rformance.