, Volume 41, Issue 3, pp 683-700
Date: 29 Sep 2012

Establishment exits in Germany: the role of size and age

Rent the article at a discount

Rent now

* Final gross prices may vary according to local VAT.

Get Access

Abstract

Using comprehensive data for West Germany, this paper investigates the determinants of establishment exit. We find that between 1975 and 2006 the average exit rate has risen considerably. In order to test various “liabilities” of establishment survival identified in the literature, we analyzed the impact of establishment size and put a special focus on differences between young and mature establishments. Our empirical analysis shows that the mortality risk falls with establishment size, which confirms the liability of smallness. The probability of exit is substantially higher for young establishments which are not more than 5 years old, thus confirming the liability of newness. There also exists a liability of aging since exit rates first decline over time, reaching a minimum at ages 15–18, and then rise again somewhat. The determinants of exit differ substantially between young and mature establishments, suggesting that young establishments are more vulnerable in a number of ways.

We would like to thank two anonymous referees of this journal and participants of the 11th Comparative Analysis of Enterprise Data & COST Conference 2012 on 26–28 April 2012 in Nuremberg for helpful comments and suggestions. We also thank the German Research Foundation for financial support under the project SCHN 730/5-1 resp. WA 610/5‐1 “Firm exits” (Betriebsschließungen) and the team of the Research Data Centre of the Federal Employment Agency at the Institute for Employment Research for their exceptional support and cooperation.