Advertisement

Review of Industrial Organization

, Volume 9, Issue 1, pp 41–56 | Cite as

The rate of hazard confronting new firms and plants in U.S. manufacturing

  • David B. Audretsch
  • Talat Mahmood
Article

Abstract

Three different factors are hypothesized to shape the hazard function confronting new businesses — the extent of scale economies relative to start-up size, the technological environment, and ownership structure. Using a longitudinal data base tracking the post-entry performance of more than 12,000 U.S. manufacturing establishments, a semi-parametric Cox regression model is used to estimate the hazard function. The evidence suggests that while the presence of high scale economies, a high-technological environment, and a relatively small initial start-up size tend to elevate the exposure of risk confronting new businesses, these factors apparently exert no influence on the likelihood of survival for new branches and subsidiaries established by existing enterprises.

Key words

Entry innovation survival new firms hazard exit 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Acs, Zoltan J. and David B. Audretsch (1987) ‘Innovation, Market Structure and Firm Size’,Review of Economics and Statistics 69, 567–575.Google Scholar
  2. Acs, Zoltan J. and David B. Audretsch (1988) ‘Innovation in Large and Small Firms: An Empirical Analysis’,American Economic Review 78, 678–690.Google Scholar
  3. Acs, Zoltan J. and David B. Audretsch (1989) ‘Small-Firm Entry in U.S. Manufacturing’,Economica 56, 255–265.Google Scholar
  4. Acs, Zoltan J. and David B. Audretsch (1989) ‘Birth and Firm Size’,Southern Economic Journal 56, 467–475.Google Scholar
  5. Acs, Zoltan J. and David B. Audretsch (1990)Innovation and Small Firms, Cambridge, MA: MIT Press.Google Scholar
  6. Arminton, Catherine and Marjorie Odle (1982) ‘Small Business — How Many Jobs?’,The Brookings Review 1, 1417.Google Scholar
  7. Arrow, Kenneth J. (1962) ‘Economic Welfare and the Allocation of Resources for Innovation’, in R. R. Nelson, (ed.),The Rate and Direction of Inventive Activity, Princeton, NJ: Princeton University Press, pp. 609–626.Google Scholar
  8. Audretsch, David B. (1991) ‘New-Firm Survival and the Technological Regime’,Review of Economics and Statistics 60, 441–450.Google Scholar
  9. Baden-Fuller, C. W. F. (1989) ‘Exit from Declining Industries and the Case of Steel Castings’,Economic Journal 99 949–961.Google Scholar
  10. Baldwin, John and Paul Gorecki (1991) ‘Entry, Exit and Productivity Growth’, inPaul Geroski andJoachim Schwalbach (eds.),Entry and Market Contestability: An International Comparison, Oxford: Basil Blackwell.Google Scholar
  11. Beesley, M.E. and R.T. Hamilton (1984) ‘Small Firms' Seedbed Role and the Concept of Turbulence’,Journal of Industrial Economics, 333, 217–232.Google Scholar
  12. Blair, John M. (1948) ‘Technology and Size’,American Economic Review 38, 121–152.Google Scholar
  13. Boden, Richard and Bruce D. Phillips (1985) ‘Uses and Limitations of USEEM/USELM Data’, Office of Advocacy,U.S. Small Business Administration, Washington, DC.Google Scholar
  14. Bradburd, Ralph and Richard E. Caves (1982) ‘A Closer Look at the Effect of Market Growth on Industries' Profits’,Review of Economics and Statistics 64, 635–645.Google Scholar
  15. Breslow, N. (1974) ‘Covariance Analysis of Censored Survival Data,Biometrics,30, 88–99.Google Scholar
  16. Brüderl, Josef and Rudolf Schüssler (1990) ‘Organizational Mortality: The Liabilities of Newness and Adolescence’,Administrative Science Quarterly 35, 530–547.Google Scholar
  17. Cable, John and Joachim Schwalbach (1991) ‘International Comparisons of Entry and Exit’, in Paul Geroski and Joachim Schwalbach (eds.).Entry and Market Contestability: An International Comparison, Oxford: Basil Blackwell.Google Scholar
  18. Carlsson, Bo (1989) ‘The Evolution of Manufacturing Technology and its Impact on Industrial Structure: An International Study’,Small Business Economics 1, 21–38.Google Scholar
  19. Caves, Richard E., J. Khalilzadeh-Shirazi, and M.E. Porter (1975) ‘Scale Economics in Statistical Analyses of Market Power’,Review of Economics and Statistics 57, 133–140.Google Scholar
  20. Caves, Richard E. and Michael E. Porter (1976) ‘Barriers to Exit’, in Robert T. Masson and P. David Qualls (eds.),Essays on Industrial Organization in Honor of Joe S. Bain, Cambridge: Ballinger.Google Scholar
  21. Cohen, Wesley M. and Steven Klepper (1991) ‘Firm Size versus Diversity in the Achievement of Technological Advance’, in Zoltan J. Acs and David B. Audretsch (eds.),Innovation and Technological Change: An International Comparison, Ann Arbor: University of Michigan Press, pp. 183–203.Google Scholar
  22. Cohen, Wesley M. and Steven Klepper (1992) ‘The Tradeoff between Firm Size and Diversity in the Pursuit of Technological Progress’,Small Business Economics 4, 1–14.Google Scholar
  23. Comanor, Williams S. and Thomas A. Willson (1967) ‘Advertising, Market Structure, and Performance’,Review of Economics and Statistics 49, 423–440.Google Scholar
  24. Cox, David R. (1972) ‘Regression Models and Life-Tables (with discussion)’,Journal of the Royal Statistical Society 34, 187–220.Google Scholar
  25. Cox, David R. (1975) ‘Partial Likelihood’,Biometrics 62, 269–275.Google Scholar
  26. Dosi, Giovanni (1988) ‘Sources, Procedures, and Microeconomic Effects of Innovation’,Journal of Economic Literature 26, 1120–1171.Google Scholar
  27. Dunne, Timothy, Mark, J. Roberts, and Larry Samuelson (1988) ‘Patterns of Firm Entry and Exit in U.S. Manufacturing Industries’,Rand Journal of Economics 19, 495–515.Google Scholar
  28. Dunne, Timothy, Mark, J. Roberts, and Larry Samuelson (1989) ‘The Growth and Failure of U.S. Manufacturing Plants’,Quarterly Journal of Economics 104, 671–698.Google Scholar
  29. Evans, David S. (1987) ‘The Relationship Between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries’,Journal of Industrial Economics 35, 567–581.Google Scholar
  30. Evans, David S. (1987) ‘Tests of Alternative Theories of Firm Growth’,Journal of Political Economy 95, 654–674.Google Scholar
  31. FitzRoy, Felix R. (1989) ‘Firm Size, Efficiency and Employment: A Review Article’,Small Business Economics 1, 75–80.Google Scholar
  32. Geroski, Paul and R. Pomroy (1990) ‘Innovation and Evolution of Market Structure’,Journal of Industrial Economics 38, 299–314.Google Scholar
  33. Geroski, Paul and Joachim Schwalbach (eds.) (1991)Entry and Market Contestability: An International Comparison, Oxford: Basil Blackwell.Google Scholar
  34. Gort, Michel and Steven Klepper (1982) ‘Time Paths in the Diffusion of Product Innovations?’,Economic Journal 92, 630–653.Google Scholar
  35. Hall, Bronwyn H. (1987) ‘The Relationship Between Firm Size and Firm Growth in the U.S. Manufacturing Sector’,Journal of Industrial Economics 35, 583–605.Google Scholar
  36. Jovanovic, Boyan (1982) ‘Selection and Evolution of Industry’,Econometrica 50, 649–670.Google Scholar
  37. Kiefer, Nicholas M. (1988) ‘Economic Duration Data and Hazard Functions’,Journal of Economic Literature 26, 646–679.Google Scholar
  38. Lawless, Jerald F. (1982)Statistical Models and Methods for Lifetime Data, New York: Wiley.Google Scholar
  39. Macdonald, James (1986) ‘Entry and Exit on the Competitive Fringe’,Southern Economic Journal 52, 640–652.Google Scholar
  40. Mahmood, Talat (1992) ‘Does the Hazard Rate for New Plants Vary between Low- and High-Tech Industries?’Small Business Economics 4, 201–210.Google Scholar
  41. Mansfield, Edwin (1962) ‘Entry, Gibrat's Law, Innovation, and the Growth of Firms’,American Economic Review 52, 1023–1051.Google Scholar
  42. Marcus, M. (1967) ‘Firms Exit Rates and Their Determinants’,Journal of Industrial Economics 10, 10–22.Google Scholar
  43. Mueller, Dennis C. and J. Tilton (1969) ‘Research and Development Costs as a Barrier to Entry’,Canadian Journal of Economics 56, 570–579.Google Scholar
  44. Mueller, Dennis (1976) ‘Information, Mobility, and Profit’,Kyklos 29, 419–448.Google Scholar
  45. Orr, Dale (1974) ‘The Determinants of Entry: A Study of the Canadian Manufacturing Industries’,Review of Economics and Statistics 56, 58–66.Google Scholar
  46. Pakes, A. and Ericson, R. (1987) ‘Empirical Implications of Alternative Models of Firm Dynamics’, Manuscript, Department of Economics, University of Wisconsin-Madison.Google Scholar
  47. Phillips, Bruce D. and Bruce A. Kirchhoff (1989) ‘Formation, Growth and Survival: Small Firm Dynamics in the U.S. Economy’,Small Business Economics 1, 65–74.Google Scholar
  48. Preisendörfer, Peter, Rudolf Schüssler and Rolf Ziegler (1989) ‘Bestandschancen neugegründeter Kleinbetriebe’,Internationales Gewerbearchiv 37, 237–248.Google Scholar
  49. Reynolds, Stanley S. (1988) ‘Plant Closings and Exit Behaviour in Declining Industries,’Economica 55, 493–503.Google Scholar
  50. Scherer, F.M. and David Ross (1990)Industrial Market Structure and Economic Performance, 3rd ed., Boston: Houghton Mifflin.Google Scholar
  51. Weiss, Leonard W. (1976) ‘Optimal Plant Scale and the Suboptimal Capacity’, in Robert T. Masson and P. D. Qualls, (eds.),Essays on Industrial Organization in Honor of Joe S. Bain, Cambridge, Massachusetts: Ballinger, pp. 126–134.Google Scholar
  52. Weiss, Leonard W. (1979) ‘The Structure-Conduct-Performance Paradigm and Antitrust’,University of Pennsylvania Law Review 127, 1104–1140.Google Scholar
  53. Weiss, Leonard W. (1964) ‘The Survival Technique and the Extent of Suboptimal Capacity’,Journal of Political Economy,72, 246–261.Google Scholar
  54. Williamson, Oliver E. (1975)Markets and Hierachies, New York, NY: Macmillan Publishing Co.Google Scholar
  55. Winter, Sidney G. (1984) ‘Schumpeterian Competition in Alternative Technological Regimes’,Journal of Economic Behavior and Organization 5, 287–320.Google Scholar

Copyright information

© Kluwer Academic Publishers 1994

Authors and Affiliations

  • David B. Audretsch
    • 1
  • Talat Mahmood
    • 1
  1. 1.CEPR and Wissenschaftszentrum Berlin für SozialforschungBerlinGermany

Personalised recommendations