Reputation Building through Failure

• Main Authors: WANG, Huan, ZHANG, Yi
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2015
• Subjects: Reputation Building; Entrepreneurs; Failure; Shock; Revival; China; Asian Studies; Behavioral Economics; Entrepreneurial and Small Business Operations; Industrial Organization
• Online Access: https://ink.library.smu.edu.sg/soe_research/1684; https://ink.library.smu.edu.sg/context/soe_research/article/2683/viewcontent/ReputationBuilding.pdf
• Institution: Singapore Management University

In China, many entrepreneurs receive strong supports each time their business fails. This contradicts existing literature and differs from rare revival elsewhere. The major explanation lies in China’s unfriendly and unstable policy environments, due to which business failure per se cannot discern competence. Therefore, entrepreneurs failing because of policy shocks have the incentive for extra efforts to build reputation of competence and trustworthiness. This mechanism prepares a pool of seasoned entrepreneurs who can help alleviate damages of not only policy shocks, but also such system shocks as business cycle and sector upgrading, and therefore makes the economy more adaptable.