William P. Barnett, Aimee-Noelle Swanson and Olav Sorenson
We discuss the creation of organizations and their survival as distinct selection processes, and consider the significance of their divergence. In particular, to understand the implications of entrepreneurial booms, we propose the possibility of asymmetric selection, where entry selection and exit selection differ from each other in strength. An observed increase in founding rates hence may reveal a decline in the selection threshold for entry—implying lower average fitness among boom-time entrants. When such an expansion occurs, organizations born during these periods of heightened entry should suffer higher failure rates in the fitness threshold required for survival remains stable or becomes more stringent. We also discuss other processes that might educe founding waves, and explain the different implications of these accounts for our empirical model. Estimates of the model support our theory of asymmetric selection in two out of three markets using a comprehensive dataset describing organizations in the U.S. computer industry.