The Effect of Leadership Turnover on an Intangible Resource: A Virtual Experiment

Entrepreneurs may start a firm and then leave it. What impact does this leadership turnover have on the firm’s intangible resources? Creating an agent-based simulation of a start-up, we examine changing leaders and the development of the intangible resource, the context-for-learning (CFL). Changing leaders negatively affects firm CFL but firms with a high level of CFL recover quicker. Firms that have a new leader with an effective leadership profile also recover quicker. Multiple leadership changes result in a developmental path for CFL that bounces around and ends below the developmental path with the original entrepreneur. For firms with low levels of CFL and an entrepreneur with an ineffective leadership profile, leadership turnover with another entrepreneur with a similar ineffective profile resulted in improved firm CFL levels. Leaders and groups matter. The relative difference between the last leader and the current leader also matters in developing socially constructed resources.