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Shared and shared alike? Founders' prior shared experience and performance of newly founded banks

Research paper by Yanfeng Zheng, Michael L. Devaughn, Mary Zellmer‐Bruhn

Indexed on: 14 Mar '16Published on: 01 Dec '15Published in: Strategic Management Journal



Abstract

Research summary: Pre‐entry industry experience is a central construct in the founding team literature. Research on prior shared experience (PSE) emphasizes that founding teams face challenges integrating and acting on independent experiences, so PSE should be beneficial for new venture performance. Existing studies, however, typically study PSE in blunt terms, expecting that more is better. Instrumental variable analyses of a unique sample of 344 commercial banks founded in four U.S. states between 1996 and 2006 showed that industry‐specific PSE may be more or less beneficial, depending on several founding team characteristics. Our findings provide nuance and caution to the narrative that PSE is always beneficial. Under some circumstances, firms with founding team PSE may be no better off than those without founding team PSE, suggesting more research is necessary to understand when and why founding team experience matters to new firms.Managerial summary: Pre‐entry experience of founding teams affects new firm performance, but is hard for founders to leverage separately gained experience. Knowledge moves more readily if sets of managers leave together to start a new firm. But, it may be simplistic to conclude that prior shared experience (PSE) is always good, or better than the sum of independent experiences. In a set of banks founded in four U.S. states between 1996 and 2006, we find that PSE is not necessarily a direct pathway to better bank performance. Characteristics of the PSE, such as the part of industry the former and new banks operate in, can lower its benefit. We also found that the benefits of PSE erode as the entire founding team develops shared history after startup. Our findings have implications for entrepreneurs, investors, and policy‐makers. Copyright © 2015 John Wiley & Sons, Ltd.