UNPACKING FIRM EXIT AT THE FIRM AND INDUSTRY LEVELS: THE ADAPTATION AND SELECTION OF FIRM CAPABILITIES

Evolutionary theory of business activity studies ho w firms are selected out of environments that they do not fit, but most existing work under-empha sizes the distinction between acquisition and dissolution as selection processes. We address thi s gap with a multi-level analysis that investigates how managerial and functional organizational capabiliti es affect whether struggling firms exit by acquisit ion or dissolution. We demonstrate that managerial and fu ctional capabilities have heterogeneous effects on selection processes, with managerial capabilities h aving particularly strong influence on acquisition exits by struggling firms. The work provides a bridge bet w en adaptation and selection views on organization l change; exit by dissolution represents selection of both firms and capabilities, while exit by acquisi tion represents firm selection but capability adaptation .