Evan Rawley

Why are firms rigid? A study of firm age and scope in hedge funds

Coauthor(s): Rui de Figueiredo, Jr., Christopher Rider.

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Abstract:
This study examines the relationship between organizational age and organizational change. Both internal and external factors constrain change as organizations age, but predictions about organizational performance in the periods preceding and following change differ by the locus of primary constraint. Specifically focusing on changes in organizational scope (i.e., product diversification), we consider accounts of structural inertia that privilege either internal or external constraints on change and then test their respective predictions using longitudinal data on 8,887 hedge funds raised by 2,781 firms between 1994 and 2005. Empirical analyses demonstrate that the rate of scope change decreases with age. The results are more consistent with the internal account than with the external account of structural inertia: younger organizations outperform older organizations prior to implementing change and, conditional on changing, after implementing change. We conclude that change is increasingly constrained by internal factors as organizations age.

Source: Working Paper
Exact Citation:
de Figueiredo, Jr., Rui, Evan Rawley, and Christopher Rider. "Why are firms rigid? A study of firm age and scope in hedge funds." Working Paper, Columbia Business School, 2013.
Date: 2013