(The) impact of reputation on rival's dynamics of choices: evidence from venture capital

Abstract

Much previous work on competitive dynamics remains limited to homogeneous inter-firm rivalry as to how firms compete and its impact on organizational performance. This study examines heterogeneous rivalry by reputation as the primary competitive force to elicit responses on rivals in market destabilization. To test the hypotheses, we use the AVCJ investment data of venture capital firms from 1994 to 2015. The results show that investment choices by reputation in the market entry impact the rivals to invest smaller amounts in a greater number of companies. Moreover, competitive pressure of reputation drive rivals less likely to diversify into the target industry, which in turn influences rivals’ IPO performance positively. These findings contribute a new theoretical lens to competitive dynamics, highlighting the important role of heterogeneous competitive tension in the VC industries.