What is the Importance of Pivoting for Firm Growth?

Mauricio Medeiros Junior, Finance, The Wharton School

Abstract: Does pivoting matter? How does it affect investment in innovation and firm performance? My goal is to analyze the relevance of pivoting for the development of a small firm into a mature one and to provide a better understanding of what constitutes a small firm. In particular, I explore the detailed information that Brazil has about its private firms to identify pivoting. Through a change in the Brazilian legal system that decreased the cost of pivoting, I can also analyze the causal effect of pivoting on firm performance and innovation to understand how they grow. This work provides evidence on the option value of pivoting to small firms and how entrepreneurs take actions towards innovative initiatives in the early stages of their enterprise.