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

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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.

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Notes

  1. 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. 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. 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. 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. 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. 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. 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. 8.

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

  9. 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. 10.

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

  11. 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.

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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

Correspondence to Rosanna Pittiglio.

Appendix

Appendix

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

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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

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Keywords

  • Exit
  • Survival analysis
  • Multinational enterprises

JEL

  • C41
  • F23
  • D21
  • L25