Chapter 9 -- Asset specificity and behavioral uncertainty as moderators of the sales growth–employment growth relationship in emerging ventures

Abstract

New venture growth is a central topic in entrepreneurship research. Although sales growth is emerging as the most commonly used measure of growth for emerging ventures, employment growth has also been used frequently. However, empirical research demonstrates that there are only very low to moderately sized correlations between the two (Delmar et al., 2003; Weinzimmer, et al., 1998). In addition, sales growth and employment growth respond differently to a wide variety of criteria (Baum et al., 2001; Delmar et al., 2003). In this study we use transaction cost economics (Williamson, 1996) as a theoretical base to examine transaction cost influences on the addition of new employees as emerging ventures experience sales growth. We theorize that transaction cost economics variables will moderate the relationship between sales growth and employment growth. We develop and test hypotheses related to asset specificity, behavioral uncertainty, and the influence of resource munificence on the strength of the sales growth/employment growth relationship. Asset specificity is theorized to be a positive moderator of the relationship between sales growth and employment growth. When the behavioral uncertainty associated with adding new employees is greater than that of outsourcing or subcontracting, it is hypothesized to be a negative moderator of the sales growth/employment growth relationship. We also hypothesize that resource scarcity will strengthen those relationships.