Skip to main content
Log in

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

  • Published:
Review of Industrial Organization Aims and scope Submit manuscript

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.

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

Access this article

Subscribe and save

Springer+ Basic
EUR 32.99 /Month
  • Get 10 units per month
  • Download Article/Chapter or Ebook
  • 1 Unit = 1 Article or 1 Chapter
  • Cancel anytime
Subscribe now

Buy Now

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

Instant access to the full article PDF.

Similar content being viewed by others

References

  • Acs, Zoltan J. and David B. Audretsch (1987) ‘Innovation, Market Structure and Firm Size’,Review of Economics and Statistics 69, 567–575.

    Google Scholar 

  • 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 

  • Acs, Zoltan J. and David B. Audretsch (1989) ‘Small-Firm Entry in U.S. Manufacturing’,Economica 56, 255–265.

    Google Scholar 

  • Acs, Zoltan J. and David B. Audretsch (1989) ‘Birth and Firm Size’,Southern Economic Journal 56, 467–475.

    Google Scholar 

  • Acs, Zoltan J. and David B. Audretsch (1990)Innovation and Small Firms, Cambridge, MA: MIT Press.

    Google Scholar 

  • Arminton, Catherine and Marjorie Odle (1982) ‘Small Business — How Many Jobs?’,The Brookings Review 1, 1417.

    Google Scholar 

  • 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 

  • Audretsch, David B. (1991) ‘New-Firm Survival and the Technological Regime’,Review of Economics and Statistics 60, 441–450.

    Google Scholar 

  • Baden-Fuller, C. W. F. (1989) ‘Exit from Declining Industries and the Case of Steel Castings’,Economic Journal 99 949–961.

    Google Scholar 

  • 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 

  • 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 

  • Blair, John M. (1948) ‘Technology and Size’,American Economic Review 38, 121–152.

    Google Scholar 

  • Boden, Richard and Bruce D. Phillips (1985) ‘Uses and Limitations of USEEM/USELM Data’, Office of Advocacy,U.S. Small Business Administration, Washington, DC.

  • 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 

  • Breslow, N. (1974) ‘Covariance Analysis of Censored Survival Data,Biometrics,30, 88–99.

    Google Scholar 

  • Brüderl, Josef and Rudolf Schüssler (1990) ‘Organizational Mortality: The Liabilities of Newness and Adolescence’,Administrative Science Quarterly 35, 530–547.

    Google Scholar 

  • 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 

  • 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 

  • 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 

  • 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 

  • 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 

  • 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 

  • Comanor, Williams S. and Thomas A. Willson (1967) ‘Advertising, Market Structure, and Performance’,Review of Economics and Statistics 49, 423–440.

    Google Scholar 

  • Cox, David R. (1972) ‘Regression Models and Life-Tables (with discussion)’,Journal of the Royal Statistical Society 34, 187–220.

    Google Scholar 

  • Cox, David R. (1975) ‘Partial Likelihood’,Biometrics 62, 269–275.

    Google Scholar 

  • Dosi, Giovanni (1988) ‘Sources, Procedures, and Microeconomic Effects of Innovation’,Journal of Economic Literature 26, 1120–1171.

    Google Scholar 

  • 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 

  • 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 

  • 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 

  • Evans, David S. (1987) ‘Tests of Alternative Theories of Firm Growth’,Journal of Political Economy 95, 654–674.

    Google Scholar 

  • FitzRoy, Felix R. (1989) ‘Firm Size, Efficiency and Employment: A Review Article’,Small Business Economics 1, 75–80.

    Google Scholar 

  • Geroski, Paul and R. Pomroy (1990) ‘Innovation and Evolution of Market Structure’,Journal of Industrial Economics 38, 299–314.

    Google Scholar 

  • Geroski, Paul and Joachim Schwalbach (eds.) (1991)Entry and Market Contestability: An International Comparison, Oxford: Basil Blackwell.

    Google Scholar 

  • Gort, Michel and Steven Klepper (1982) ‘Time Paths in the Diffusion of Product Innovations?’,Economic Journal 92, 630–653.

    Google Scholar 

  • 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 

  • Jovanovic, Boyan (1982) ‘Selection and Evolution of Industry’,Econometrica 50, 649–670.

    Google Scholar 

  • Kiefer, Nicholas M. (1988) ‘Economic Duration Data and Hazard Functions’,Journal of Economic Literature 26, 646–679.

    Google Scholar 

  • Lawless, Jerald F. (1982)Statistical Models and Methods for Lifetime Data, New York: Wiley.

    Google Scholar 

  • Macdonald, James (1986) ‘Entry and Exit on the Competitive Fringe’,Southern Economic Journal 52, 640–652.

    Google Scholar 

  • 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 

  • Mansfield, Edwin (1962) ‘Entry, Gibrat's Law, Innovation, and the Growth of Firms’,American Economic Review 52, 1023–1051.

    Google Scholar 

  • Marcus, M. (1967) ‘Firms Exit Rates and Their Determinants’,Journal of Industrial Economics 10, 10–22.

    Google Scholar 

  • 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 

  • Mueller, Dennis (1976) ‘Information, Mobility, and Profit’,Kyklos 29, 419–448.

    Google Scholar 

  • Orr, Dale (1974) ‘The Determinants of Entry: A Study of the Canadian Manufacturing Industries’,Review of Economics and Statistics 56, 58–66.

    Google Scholar 

  • Pakes, A. and Ericson, R. (1987) ‘Empirical Implications of Alternative Models of Firm Dynamics’, Manuscript, Department of Economics, University of Wisconsin-Madison.

  • 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 

  • Preisendörfer, Peter, Rudolf Schüssler and Rolf Ziegler (1989) ‘Bestandschancen neugegründeter Kleinbetriebe’,Internationales Gewerbearchiv 37, 237–248.

    Google Scholar 

  • Reynolds, Stanley S. (1988) ‘Plant Closings and Exit Behaviour in Declining Industries,’Economica 55, 493–503.

    Google Scholar 

  • Scherer, F.M. and David Ross (1990)Industrial Market Structure and Economic Performance, 3rd ed., Boston: Houghton Mifflin.

    Google Scholar 

  • 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 

  • Weiss, Leonard W. (1979) ‘The Structure-Conduct-Performance Paradigm and Antitrust’,University of Pennsylvania Law Review 127, 1104–1140.

    Google Scholar 

  • Weiss, Leonard W. (1964) ‘The Survival Technique and the Extent of Suboptimal Capacity’,Journal of Political Economy,72, 246–261.

    Google Scholar 

  • Williamson, Oliver E. (1975)Markets and Hierachies, New York, NY: Macmillan Publishing Co.

    Google Scholar 

  • Winter, Sidney G. (1984) ‘Schumpeterian Competition in Alternative Technological Regimes’,Journal of Economic Behavior and Organization 5, 287–320.

    Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Additional information

We wish to thank Ron Braeutigam, Bruce Kogut, Paul Geroski, Dennis Mueller, and two anonymous referees for their helpful comments, and Jianping Yang for his diligent computational assistance. All errors and omissions remain our responsibility.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Audretsch, D.B., Mahmood, T. The rate of hazard confronting new firms and plants in U.S. manufacturing. Rev Ind Organ 9, 41–56 (1994). https://doi.org/10.1007/BF01024218

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1007/BF01024218

Key words

Navigation