Skip to main content

Advertisement

SpringerLink
Log in

Multinational Enterprises, Technological Intensity and Firm Survival. Evidence from Italian Manufacturing and Services Firms

  • Published:
Atlantic Economic Journal Aims and scope Submit manuscript

Abstract

This paper investigates two main questions: Are affiliates of foreign multinationals more likely to exit the market than domestic firms? Does the exit probability of foreign firms depend on the technological environment in which they operate? Controlling for a set of firm- and industry-specific characteristics, our results show that Italian firms owned by foreign firms are more footloose than domestic ones regardless of the macro sector of activity in which they are involved (i.e. manufacturing and services). By taking into consideration the technological environment where firms operate, we also find that foreign ownership still exerts a negative influence on firm survival in both less and more technologically advanced industries. However, there is evidence of a stronger negative influence on the survival of firms operating in low- and medium-low technology industries and in less-knowledge-intensive services.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. A firm is identified as a domestic non-multinational enterprise (DOMF) if it has no subsidiaries in countries other than Italy and it is not foreign-owned.

  2. However, the literature is controversial on this point. Some authors posit that multinationals should face higher sunk costs when establishing a new firm because new firms are typically more skill- and capital-intensive than incumbent firms. Other authors claim that multinationals, such as multi-unit enterprises, are likely to benefit from lower sunk costs in terminating a plant’s operations due to the greater efficiency of their internal factor markets in re-deploying the production equipment and labour force of the closed plant (Baden-Fuller 1989).

  3. In one recent study on Portugal, Varum et al. (2010) have shown that foreign firms operating in more technology-intensive industries face lower hazards during crises.

  4. We focus on this period because, since 2004, AIDA showed wider coverage of corporate enterprises operating in both the manufacturing and services sectors.

  5. Approximately 95 percent of the firms present in our database have less than 50 employees compared with the official statistics of 98.5 % in 2006 (ISTAT 2008).

  6. In 1970, the Statuto dei Lavoratori (Law No. 300) established that in the case of unfair dismissals, all firms with more than 15 employees had to hire back workers and pay the wages foregone.

  7. Firms undergoing temporary crisis may access these schemes instead of firing part of their workforce. Wages are temporarily paid by supplementation funds and the employment spell is not broken.

  8. For a detailed list of these sectors along with their Italian Standard Industrial Classification (ATECO) codes, see Table 8 in the appendix.

  9. All nominal variables included in the database were deflated using an appropriate producer price index provided by ISTAT, which also provided the annual input–output table used to construct inter-industry linkages. Simple correlation coefficients were also calculated among the variables to assess whether multicollinearity was present. Correlations between the independent variables were generally low. Results are available upon request.

  10. Similar results for manufacturing were found by Bandick (2010) for Sweden and by Özler and Taymaz (2007) for Turkey.

  11. The empirical evidence of the effect of market concentration on firm survival is mixed. Görg and Strobl (2003) found a positive effect, and Mata and Portugal (1994) and (Strotmann 2007) found a negative effect.

References

  • Agarwal, R., & Gort, M. (1996). The evolution of markets and entry, exit and survival of firms. Review of Economics and Statistics, 78(3), 489–498.

    Article  Google Scholar 

  • Aitken, B., & Harrison, A. (1999). Do domestic firms benefit from direct foreign investment? Evidence from Venezuela. American Economic Review, 89(3), 605–618.

    Article  Google Scholar 

  • Alvarez, R., & Görg, H. (2009). Multinationals and plant exit: evidence from Chile. International Review of Economics and Finance, 18(1), 45–51.

    Article  Google Scholar 

  • Audretsch, D. (1991). New firm survival and the technological regime. Review of Economics and Statistics, 73(4), 520–526.

    Google Scholar 

  • Audretsch, D. (1995). Innovation and industry evolution. Cambridge: MIT Press.

    Google Scholar 

  • Audretsch, D., & Mahmood, T. (1995). New-firm survival: new results using a hazard function. Review of Economics and Statistics, 77(1), 97–103.

    Article  Google Scholar 

  • Ayyagari, M., & Kosová, R. (2010). Does FDI facilitate domestic entry? Evidence from the Czech Republic. Review of International Economics, 18(1), 14–29.

    Article  Google Scholar 

  • Baden-Fuller, C. (1989). Exit from declining industries and the case of steel castings. The Economic Journal, 99(398), 949–961.

    Article  Google Scholar 

  • Bandick, R. (2010). Multinationals and plant survival. Review of World Economics, 146(4), 609–634.

    Article  Google Scholar 

  • Bernard, A. B., & Sjöholm, F. (2003). Foreign owners and plant survival, NBER Working Paper 10039.

  • Castellani, D., & Zanfei, A. (2007). Multinational companies and productivity spillovers: is there a specification error? Applied Economics Letters, 14(14), 1047–1051.

    Article  Google Scholar 

  • Christensen, C. M. (1997). Patterns in the evolution of product competition. European Management Journal, 15(2), 117–127.

    Article  Google Scholar 

  • Colombo, M., & Delmastro, M. (2000). A note on the relation between size, ownership status and plant’s closure: sunk costs vs. strategic size liability. Economic Letter, 69(3), 421–427.

    Article  Google Scholar 

  • Comanor, W., & Wilson, T. (1967). Advertising, market structure, and performance. Review of Economics and Statistics, 9(4), 423–440.

    Article  Google Scholar 

  • Cox, D. R. (1972). Regression models and life-tables. Journal of the Royal Statistical Society, Series B, 34(2), 187–220.

    Google Scholar 

  • Disney, R., Haskel, J., & Heden, Y. (2003). Entry, exit and establishment survival in UK manufacturing. Journal of Industrial Economics, 51(2), 91–112.

    Article  Google Scholar 

  • Dixit, A. (1989). Entry and exit decisions under uncertainty. Journal of Political Economy, 97(2), 620–638.

    Article  Google Scholar 

  • Dixit, A., & Pindyck, R. (1994). Investment under Uncertainty. Princeton: Princeton University Press.

    Google Scholar 

  • Doms, M., Dunne, T., & Roberts, M. (1995). The role of technology use in the survival and growth of manufacturing plants. International Journal of Industrial Organization, 13(4), 523–542.

    Article  Google Scholar 

  • Dunne, T., Roberts, M., & Samuelson, L. (1988). Patterns of firm entry and exit in US manufacturing industries. Rand Journal of Economics, 19(4), 495–515.

    Article  Google Scholar 

  • Ericson, R., & Pakes, A. (1995). Markov-Perfect industry dynamics: a framework for empirical work. Review of Economic Studies, 62(1), 53–82.

    Article  Google Scholar 

  • Esteve Pérez, S., & Mañez Castillejo, J. (2008). The resource-based theory of the firm and firm survival. Small Business Economics, 30(3), 231–249.

    Article  Google Scholar 

  • Eurostat. (2006). High-technology manufacturing and knowledge-intensive service sectors. Luxembourg: EUROSTAT.

    Google Scholar 

  • Evans, D. S. (1987). The relationship between firm growth, size, and age: estimates for 100 manufacturing industries. The Journal of Industrial Economics, 35(4), 567–581.

    Article  Google Scholar 

  • Ferragina, A., & Mazzotta, F. (2013). FDI spillovers on firm survival in Italy: absorptive capacity matters! Journal of Technology Transfer. doi:10.1007/s10961-013-9321-z.

    Google Scholar 

  • Ferragina, A., Pittiglio, R., & Reganati, F. (2012). Multinational status and firm exit in the Italian manufacturing and service sectors’. Structural Change and Economic Dynamics, 23(4), 363–372.

    Article  Google Scholar 

  • Flamm, K. (1984). The volatility of offshore investment. Journal of Development Economics, 16(3), 231–248.

    Article  Google Scholar 

  • George, G. (2005). Slack resources and the performance of privately held firms. Academy of Management Journal, 48(4), 661–676.

    Article  Google Scholar 

  • Geroski, P. A. (1995). What do we know about entry? International Journal of Industrial Organization, 13(4), 421–440.

    Article  Google Scholar 

  • Girma, S., & Görg, H. (2004). Blessing or curse? Domestic plants survival and employment prospects after foreign acquisition. Applied Economics Quarterly, 50(1), 89–110.

    Google Scholar 

  • Görg, H., & Strobl, E. (2003). Multinational companies, technology spillovers and plant survival. Scandinavian Journal of Economics, 105(4), 581–595.

    Article  Google Scholar 

  • Hopenhayn, H. A. (1992). Entry, exit, and firm dynamics in long run equilibrium. Econometrica, 60(5), 1127–1150.

    Article  Google Scholar 

  • Imbriani, C., & Reganati, F. (2002). Do multinational enterprises affect domestic firms’ productivity? Studi Economici, 78(3), 5–18.

    Google Scholar 

  • Imbriani, C., & Reganati, F. (2004). The effects of foreign direct investment on local firms: some evidence from panel data for the Italian manufacturing sector. The Journal of Current Research in Global Business, 6(9), 18–24.

    Google Scholar 

  • Imbriani, C., Pittiglio, R., Reganati, F., & Sica, E. (2014). How much do technological gap, firm size, and regional characteristics matter for the absorptive capacity of Italian enterprises? International Advances in Economic Research, 20(1), 57–72.

    Article  Google Scholar 

  • Inui, T., Kneller, R., and Matsuura, T. and McGowan, D. (2009). Globalization, productivity and plant exit - evidence from Japan. E.S.R.I., Cabinet Office and Nihon University.

  • ISTAT. (2008). Statistiche in breve. La demografia d’impresa. Anni 2001–2006. Roma: Istat.

    Google Scholar 

  • Javorcik, S. B. (2004). Does foreign direct investment increase the productivity of domestic firms? In search of spillovers through backward linkages. American Economic Review, 94(3), 605–627.

    Article  Google Scholar 

  • Jovanovic, B. (1982). Selection and the evolution of industry. Econometrica, 50(3), 649–670.

    Article  Google Scholar 

  • Kosová, R. (2010). Do foreign firms crowd out domestic firms? Evidence from the Czech Republic. Review of economics and statistics, 92(4), 861–881.

    Article  Google Scholar 

  • Kronborg, D., & Thomsen, S. (2009). Foreign ownership and long-term surviva. Strategic Management Journal, 30(2), 207–219.

    Article  Google Scholar 

  • Mata, J., & Portugal, P. (1994). Life duration of new firms. Journal of Industrial Economics, 42(3), 227–246.

    Article  Google Scholar 

  • Mata, J., & Portugal, P. (2002). The survival of new domestic and foreign-owned firms. Strategic Management Journal, 23(4), 323–343.

    Article  Google Scholar 

  • McCloughan, P., & Stone, I. (1998). Life duration of foreign multinational subsidiaries: Evidence from UK northern manufacturing industry 1970–93. International Journal of Industrial Organization, 16(6), 719–747.

    Article  Google Scholar 

  • Melitz, M. (2003). The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica, 71(6), 1695–1725.

    Article  Google Scholar 

  • Özler, S., & Taymaz, E. (2007). Foreign ownership, competition and survival dynamics. Review of Industrial Organization, 31(1), 23–42.

    Article  Google Scholar 

  • Pittiglio, R., Reganati, F., and Sica, E. (2008). Horizontal and vertical spillovers from FDI in the Italian productive system. Quaderni DSEMS 08–2008, University of Foggia.

  • Reganati, F., & Sica, E. (2007). Horizontal and vertical spillovers from FDI: evidence from panel data for the Italian manufacturing sector. Journal of Business Economics and Management, 8(4), 259–266.

    Google Scholar 

  • Schivardi, F., and Torrini R. (2003). Firm size distribution and EPL in Italy. William Davidson Institute Working Paper, 613

  • Segarra, A., & Callejón, M. (2002). New firms’ survival and market turbulence: new evidence from Spain. Review of Industrial Organization, 20(1), 1–14.

    Article  Google Scholar 

  • Strotmann, H. (2007). Entrepreneurial survival. Small Business Economics, 28(1), 87–104.

    Article  Google Scholar 

  • Tveterås, R., & Eide, G. E. (2000). Survival of new plants in different industry environments in Norwegian manufacturing: A semi-proportional Cox model approach. Small Business Economics, 14(1), 65–82.

    Article  Google Scholar 

  • Van Beveren, I. (2007). Footloose multinationals in Belgium? Review of World Economics, 143(3), 483–507.

    Article  Google Scholar 

  • Varum, C. A., Rocha, V. C., & Da Silva, H. (2010). Foreign ownership and firm hazard during crises: the moderating role of industry’s technological intensity. The Empirical Economics Letters, 9(12), 1131–1137.

    Google Scholar 

  • Wagner, J. (1994). The post-entry performance of new small firms in German manufacturing industries. Journal of Industrial Economics, 42(2), 141–154.

    Article  Google Scholar 

  • Wang, J. Y., & Blomström, M. (1992). Foreign investment and technology transfer: A simple model. European Economic Review, 36(1), 137–155.

    Article  Google Scholar 

Download references

Acknowledgments

We would like to thank an anonymous referee for providing us with constructive comments and suggestions.

We owe special thanks to Carla Carlucci for her support with the database construction and to Umberto De Marco for his assistance with the AIDA data collection. Any errors or omissions remain the responsibility of the authors.

Author information

Authors and Affiliations

  1. Second University of Napoli, Capua, CE, Italy

    Rosanna Pittiglio

  2. Sapienza, University of Roma, Roma, RM, Italy

    Filippo Reganati

Authors
  1. Rosanna Pittiglio
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Filippo Reganati
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Rosanna Pittiglio.

Appendix

Appendix

Table 8 Eurostat-OECD classification ATECO 2002
Full size table
Table 9 Definition of variables used in Eq. (4)
Full size table

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Pittiglio, R., Reganati, F. Multinational Enterprises, Technological Intensity and Firm Survival. Evidence from Italian Manufacturing and Services Firms. Atl Econ J 43, 87–106 (2015). https://doi.org/10.1007/s11293-014-9441-3

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11293-014-9441-3

Keywords

JEL

Search

Navigation