Small Business Economics

, Volume 41, Issue 3, pp 683–700 | Cite as

Establishment exits in Germany: the role of size and age



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.


Firm exits Firm size Firm age Germany 

JEL Classifications



  1. Abowd, J. M., McKinney, K. L., & Vilhuber, L. (2009). The link between human capital, mass layoffs and firm deaths. In T. Dunne, J. B. Jensen, & M. J. Roberts (Eds.), Producer dynamics—new evidence from micro data (pp. 447–472). Chicago: University of Chicago Press.CrossRefGoogle Scholar
  2. Addison, J. T., Bellmann, L., & Kölling, A. (2004). Work councils and plant closings in Germany. British Journal of Industrial Relations, 42, 125–148.CrossRefGoogle Scholar
  3. Ai, C., & Norton, E. C. (2003). Interaction terms in logit and probit models. Economics Letters, 80, 123–129.CrossRefGoogle Scholar
  4. Aldrich, H. E., & Auster, E. (1986). Even dwarfs started small: Liabilities of size and age and their strategic implications. Research in Organizational Behavior, 8, 165–198.Google Scholar
  5. Almus, M. (2004). The shadow of death—An empirical analysis of the pre-exit performance of new German firms. Small Business Economics, 23, 189–201.CrossRefGoogle Scholar
  6. Angrist, J. D., & Pischke, J.-S. (2009). Mostly harmless econometrics—An empiricist’s companion. Princeton, NJ: Princeton University Press.Google Scholar
  7. Audretsch, D. B. (1991). New-firm survival and the technological regime. Review of Economics and Statistics, 73, 441–450.CrossRefGoogle Scholar
  8. Audretsch, D. B. (1995). Innovation and industry evolution. Cambridge: MIT Press.Google Scholar
  9. Audretsch, D. B., & Mahmood, T. (1994). The rate of hazard confronting new firms and plants in U.S. manufacturing. In: Review of Industrial Organization, 9, 41–56.CrossRefGoogle Scholar
  10. Audretsch, D. B., Santarelli, E., & Vivarelli, M. (1999). Start-up size and industrial dynamics: Some evidence from Italian manufacturing. International Journal of Industrial Organization, 17, 965–983.CrossRefGoogle Scholar
  11. Baptista, R., & Karaöz, M. (2011). Turbulence in growing and declining industries. Small Business Economics, 36, 249–270.CrossRefGoogle Scholar
  12. Barron, D. N., West, E., & Hannan, M. T. (1994). A time to grow and a time to die: Growth and mortality of credit unions in New York City, 1914–1990. American Journal of Sociology, 100, 381–421.CrossRefGoogle Scholar
  13. Bartelsman, E., Scarpetta, S., & Schivardi, F. (2005). Comparative analysis of firm demographics and survival: Evidence from micro-level sources in OECD countries. Industrial and Corporate Change, 14, 365–391.CrossRefGoogle Scholar
  14. Baum, J. A. C., & Amburgey, T. L. (2005). Organizational ecology. In J. A. C. Baum (Ed.), The Blackwell companion to organizations (pp. 304–326). Oxford: Blackwell.CrossRefGoogle Scholar
  15. Bellone, F., Musso, P., Nesta, L., & Quéré, M. (2008). Market selection along the firm life cycle. Industrial and Corporate Change, 17, 753–777.CrossRefGoogle Scholar
  16. Bellone, F., Musso, P., Quéré, M., & Nesta, L. (2006). Productivity and market selection of French manufacturing firms in the nineties. Revue de L’OFCE, 97, 319–349.CrossRefGoogle Scholar
  17. Bernard, A. B., & Jensen, J. B. (2007). Firm structure, multinationals, and manufacturing plant deaths. Review of Economics and Statistics, 89, 193–204.CrossRefGoogle Scholar
  18. Blossfeld, H.-P. (1987). Labor market entry and the sexual segregation of careers in the Federal Republic of Germany. American Journal of Sociology, 93, 89–118.CrossRefGoogle Scholar
  19. Boeri, T., & Bellmann, L. (1995). Post-entry behavior and the cycle: Evidence from Germany. International Journal of Industrial Organization, 13, 483–500.CrossRefGoogle Scholar
  20. Box, M. (2008). The death of firms: Exploring the effects of environment and birth cohort on firm survival in Sweden. Small Business Economics, 31, 379–393.CrossRefGoogle Scholar
  21. Brixy, U., & Fritsch, M. (2002). Die Betriebsdatei der Beschäftigtenstatistik der Bundesanstalt für Arbeit. In M. Fritsch & R. Grotz (Eds.), Das Gründungsgeschehen in Deutschland (pp. 55–78). Heidelberg: Physica.CrossRefGoogle Scholar
  22. Brixy, U., & Grotz, R. (2007). Regional patterns and determinants of birth and survival of new firms in Western Germany. Entrepreneurship & Regional Development, 19, 293–312.CrossRefGoogle Scholar
  23. Brixy, U., Kohaut, S., & Schnabel, C. (2006). How fast do newly founded firms mature? Empirical analyses on job quality in start-ups. In M. Fritsch & J. Schmude (Eds.), Entrepreneurship in the region (pp. 95–112). New York: Springer.CrossRefGoogle Scholar
  24. Brüderl, J., & Schüssler, R. (1990). Organizational mortality: The liabilities of newness and adolescence. Administrative Science Quarterly, 35, 530–547.CrossRefGoogle Scholar
  25. Buehler, S., Kaiser, C., & Jaeger, F. (2012). The geographic determinants of bankruptcy: Evidence from Switzerland. Small Business Economics, 39, 231–351.CrossRefGoogle Scholar
  26. Cafferata, R., Abatecola, G., & Poggesi, S. (2009). Revisiting Stinchcombe’s ‘liability of newness’: A systematic literature review. International Journal of Globalization and Small Business, 3, 374–392.CrossRefGoogle Scholar
  27. Calvo, J. L. (2006). Testing Gibrat’s law for small young and innovating firms. In: Small Business Economics, 26, 117–123.CrossRefGoogle Scholar
  28. Carlton, D. W., & Perloff, J. M. (2005). Modern industrial organization (4th ed.). Boston: Irwin McGraw-Hill.Google Scholar
  29. Carreira, C., & Silva, F. (2010). No deep pockets: Some stylized empirical results on firms’ financial constraints. Journal of Economic Surveys, 24, 731–753.CrossRefGoogle Scholar
  30. Carrol, G. R. (1983). A stochastic model of organizational mortality: Review and reanalysis. Social Science Research, 12, 303–329.CrossRefGoogle Scholar
  31. Carroll, G. R., & Hannan, M. T. (2000). The demography of corporations and industries. Princeton, NJ: Princeton University Press.Google Scholar
  32. Caves, R. (1998). Industrial organization and new findings on the turnover and mobility of firms. Journal of Economic Literature, 36, 1947–1982.Google Scholar
  33. Cefis, E., & Marsili, O. (2006). Survivor: The role of innovation in firms’ survival. Research Policy, 35, 626–641.CrossRefGoogle Scholar
  34. DeTienne, D. R., & Cardon, M. S. (2012). Impact of founder experience on exit intentions. Small Business Economics, 38, 351–374.CrossRefGoogle Scholar
  35. Disney, R., Haskel, J., & Heden, Y. (2003). Entry, exit and establishment survival in UK manufacturing. Journal of Industrial Economics, 51, 91–112.CrossRefGoogle Scholar
  36. Dunne, T., Roberts, M. J., & Samuelson, L. (1989). The growth and failure of U.S. manufacturing plants. Quarterly Journal of Economics, 104(4), 671–698.CrossRefGoogle Scholar
  37. Eberle, J., Jacobebbinghaus, P., Ludsteck, J., & Witter, J. (2011). Generation of time-consistent industry codes in the face of classification changes—Simple heuristic based on the Establishment History Panel (BHP). FDZ-Methodenreport 5, Nürnberg.Google Scholar
  38. Egeln, J., Falk, U., Heger, D., Höwer, D., & Metzger, G. (2010). Ursachen für das Scheitern junger Unternehmen in den ersten fünf Jahren ihres Bestehens, Studie im Auftrag des Bundesministeriums für Wirtschaft und Technologie. Mannheim: Zentrum für Europäische Wirtschaftsforschung.Google Scholar
  39. Ericson, R., & Pakes, A. (1995). Markov-perfect industry dynamics: A framework for empirical work. Review of Economic Studies, 62, 53–82.CrossRefGoogle Scholar
  40. Esteve-Pérez, S., & Mañez-Castillejo, J. A. (2008). The resource-based theory of the firm and firm survival. Small Business Economics, 30, 231–249.CrossRefGoogle Scholar
  41. Fackler, D., Schnabel, C., & Wagner, J. (2012). Establishment exits in Germany: The role of size and age. IZA Discussion Paper No. 6349, Bonn.Google Scholar
  42. Fichman, M., & Levinthal, D. A. (1991). Honeymoons and the liability of adolescence: A new perspective on duration dependence in social and organizational relationships. Academy of Management Review, 16, 442–468.Google Scholar
  43. Freeman, J., Carrol, G. R., & Hannan, M. T. (1983). The liability of newness: Age dependence in organizational death rates. American Sociological Review, 48, 692–710.CrossRefGoogle Scholar
  44. Fritsch, M., Brixy, U., & Falck, O. (2006). The effect of industry, region, and time on new business survival—A multi-dimensional analysis. Review of Industrial Organization, 28, 285–306.CrossRefGoogle Scholar
  45. Geroski, P. A. (1995). What do we know about entry? International Journal of Industrial Organization, 13, 421–440.CrossRefGoogle Scholar
  46. Geroski, P. A., Mata, J., & Portugal, P. (2010). Founding conditions and the survival of new firms. Strategic Management Journal, 31, 510–529.Google Scholar
  47. Hannan, M. T., Carrol, G. R., Dobrev, S. D., & Han, J. (1998). Organizational mortality in European and American Automobile Industries. Part I: Revisiting the effects of age and size. European Sociological Review, 14, 279–302.CrossRefGoogle Scholar
  48. Hannan, M. T., & Freeman, J. (1984). Structural inertia and organizational change. American Sociological Review, 49, 149–164.CrossRefGoogle Scholar
  49. Harhoff, D., Stahl, K., & Woywode, M. (1998). Legal form, growth and exit of West German firms—Empirical results for manufacturing, construction, trade and service industries. Journal of Industrial Economics, 96, 453–488.CrossRefGoogle Scholar
  50. Heckmann, M., & Schnabel, C. (2006). Überleben und Beschäftigungsentwicklung neu gegründeter Betriebe. In L. Bellmann & J. Wagner (Eds.), Betriebsdemographie, Beiträge zur Arbeitsmarkt- und Berufsforschung 305 (pp. 1–29). Nürnberg: IAB.Google Scholar
  51. Hethey, T., & Schmieder, J. F. (2010). Using worker flows in the analysis of establishment turnover—Evidence from German Administrative Data. FDZ-Methodenreport 6, Nürnberg.Google Scholar
  52. Hethey-Meier, T., & Seth, S. (2010). The Establishment History Panel (BHP) 1975–2008—handbook version 1.0.2. FDZ-Datenreport 4, Nürnberg.Google Scholar
  53. Hopenhayn, H. A. (1992). Entry, exit and firm dynamics in long run equilibrium. Econometrica, 60, 1127–1150.CrossRefGoogle Scholar
  54. Jenkins, S. P. (1995). Easy ways to estimate discrete time duration models. Oxford Bulletin of Economics and Statistics, 57, 129–138.CrossRefGoogle Scholar
  55. Jenkins, S. P. (2005). Survival analysis. Institute for Social and Economic Research, University of Essex, Colchester.Google Scholar
  56. Jensen, P. H., Webster, E., & Buddelmeyer, H. (2008). Innovation, technological conditions and new firm survival. Economic Record, 84, 434–448.CrossRefGoogle Scholar
  57. Jovanovic, B. (1982). Selection and the evolution of industry. Econometrica, 50, 649–670.CrossRefGoogle Scholar
  58. Lengermann, P., & Vilhuber, L. (2002). Abandoning the sinking ship: The composition of worker flows prior to displacement. LEHD Technical Paper No. TP-2002-11, Suitland, MD.Google Scholar
  59. Lotti, F., Santarelli, E., & Vivarelli, M. (2003). Does Gibrat’s Law hold among young, small firms? Journal of Evolutionary Economics, 13, 213–235.CrossRefGoogle Scholar
  60. Lotti, F., Santarelli, E., & Vivarelli, M. (2009). Defending Gibrat’s Law as a long-run regularity. Small Business Economics, 32, 31–44.CrossRefGoogle Scholar
  61. Lucas, R. E. (1978). On the size distribution of business firms. Bell Journal of Economics, 9, 508–523.CrossRefGoogle Scholar
  62. Mata, J. (1996). Markets, entrepreneurs and the size of new firms. Economics Letters, 52, 89–94.CrossRefGoogle Scholar
  63. Mata, J., Portugal, P., & Guimeraes, P. (1995). The survival of new plants: Start-up conditions and post-entry evolution. International Journal of Industrial Organization, 13, 459–481.CrossRefGoogle Scholar
  64. Millán, J. M., Congregado, E., & Román, C. (2012). Determinants of self-employment in Europe. Small Business Economics, 38, 231–258.CrossRefGoogle Scholar
  65. Niese, M. (2003). Ursachen von Betriebsschließungen. Münster: LIT.Google Scholar
  66. Ouyang, M. (2009). The scarring effect of recessions. Journal of Monetary Economics, 56, 184–199.CrossRefGoogle Scholar
  67. Ranger-Moore, J. (1997). Bigger may be better, but is older wiser? Organizational age and size in the New York life insurance industry. American Sociological Review, 62, 903–920.CrossRefGoogle Scholar
  68. Santarelli, E., Klomp, L., & Thurik, R. A. (2006). Gibrat’s Law: An overview of the empirical literature. In E. Santarelli (Ed.), Entrepreneurship, growth, and innovation (pp. 41–73). New York: Springer.CrossRefGoogle Scholar
  69. Santarelli, E., & Vivarelli, M. (2007). Entrepreneurship and the process of firms’ entry, survival and growth. Industrial and Corporate Change, 16, 455–488.CrossRefGoogle Scholar
  70. Schindele, Y., & Weyh, A. (2011). The direct employment effects of new businesses in Germany revisited: An empirical investigation for 1976–2004. Small Business Economics, 36, 353–363.CrossRefGoogle Scholar
  71. Schwerdt, G. (2011). Labor turnover before plant closure: “Leaving the sinking ship” vs. “Captain throwing ballast overboard”. In: Labour Economics, 18, 93–101.CrossRefGoogle Scholar
  72. Spengler, A. (2008). The establishment history panel. Schmollers Jahrbuch, 128, 501–509.CrossRefGoogle Scholar
  73. Stinchcombe, A. (1965). Social structure and organizations. In J. G. March (ed.), Handbook of Organizations (pp. 142–193). Chicago: Rand McNally & Company.Google Scholar
  74. Strotmann, H. (2007). Entrepreneurial survival. Small Business Economics, 28, 87–104.CrossRefGoogle Scholar
  75. Sutton, J. (1997). Gibrat’s legacy. Journal of Economic Literature, 35, 40–59.Google Scholar
  76. Thornhill, S., & Amit, R. (2003). Learning about failure: Bankruptcy, firm age, and the resource-based view. Organization Science, 14, 497–509.CrossRefGoogle Scholar
  77. Wagner, J. (1994). The post-entry performance of new firms in German manufacturing industries. Journal of Industrial Economics, 92, 141–154.CrossRefGoogle Scholar
  78. Wagner, J. (1999). The life history of cohorts of exits from German manufacturing. Small Business Economics, 13, 71–79.CrossRefGoogle Scholar
  79. Wagner, J. (2006). Firmenalter und Firmenperformance: Empirische Befunde zu Unterschieden zwischen jungen und alten Firmen in Deutschland. In L. Bellmann & J. Wagner (Eds.), Betriebsdemographie, Beiträge zur Arbeitsmarkt- und Berufsforschung 305 (pp. 83–111). Nürnberg: IAB der BA.Google Scholar
  80. Wagner, J. (2010). Entry, exit and productivity: Empirical results for German Manufacturing Industries. German Economic Review, 11, 78–85.CrossRefGoogle Scholar
  81. Weber, A., & Zulehner, C. (2009). Competition and gender prejudice: Are discriminatory employers doomed to fail? CESifo Working Paper 2842, Munich.Google Scholar
  82. Weber, A., & Zulehner, C. (2010). Female hires and the success of start-up firms. American Economic Review, 100, 358–361.CrossRefGoogle Scholar
  83. Wooldridge, J. M. (2010). Econometric analysis of cross section and panel data (2nd ed.). Cambridge: MIT.Google Scholar
  84. Woywode, M. (1998). Determinanten der Überlebenswahrscheinlichkeit von Unternehmen. Baden-Baden: Nomos.Google Scholar

Copyright information

© Springer Science+Business Media, LLC. 2012

Authors and Affiliations

  • Daniel Fackler
    • 1
  • Claus Schnabel
    • 2
    • 3
  • Joachim Wagner
    • 3
    • 4
  1. 1.University of Erlangen-NürnbergNurembergGermany
  2. 2.LASERUniversity of Erlangen-NürnbergNurembergGermany
  3. 3.IZABonnGermany
  4. 4.Institute of EconomicsLeuphana University LüneburgLüneburgGermany

Personalised recommendations