INSTITUTIONAL UNCERTAINTY AND STARTUP FAILURE TRAJECTORIES: A SYSTEMATIC LITERATURE REVIEW AND CAPABILITY-BASED RESEARCH DIRECTIONS

Abstract

Startup failure remains a central yet insufficiently integrated concern in entrepreneurship research, particularly within environments characterized by institutional uncertainty. Although prior studies consistently demonstrate that regulatory volatility, policy inconsistency, and weak institutional support structures influence venture survival, failure is still predominantly treated as a discrete outcome rather than as a trajectory shaped by firms’ adaptive responses over time. Addressing this limitation, this systematic literature review synthesizes insights from institutional theory, venture failure research, and capability-based entrepreneurship to examine how institutional uncertainty, digital opportunity capability, and adaptive learning agility influence startup failure trajectories through strategic experimentation intensity. The review identifies experimentation intensity as a critical yet underexplored mechanism that translates environmental uncertainty and capability conditions into heterogeneous venture decline pathways and develops a capability-based mediation framework to explain variation in failure trajectories across startups operating under unstable institutional environments.