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Empirical Economics

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01.06.2016

Determinants of survival of newly created SMEs in the Brazilian manufacturing industry: an econometric study

verfasst von: Marcelo Resende, Vicente Cardoso, Luis Otávio Façanha

Erschienen in: Empirical Economics | Ausgabe 4/2016

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Abstract

This paper investigates the survival of newly created small and medium enterprises in Brazilian manufacturing. It takes as a reference newly created firms in 1996 that are followed until 2005. The econometric analysis relies on a time-varying version of Cox’s proportional hazards model. The evidence mostly corroborates previous findings for developed countries. Salient results include the positive role played by firm size, industry size and industry growth on survival and the negative influence exerted by the minimum efficient scale and the suboptimal scale.

Vorheriger Artikel Matching labor’s share in a search and matching model

Nächster Artikel Evaluating the state of competition and the welfare losses in the Greek manufacturing sector: an extended Hall–Roeger approach

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As indicated by the private entity for support of SMEs in Brazil [Serviço Brasileiro de Apoio às Micro e Pequenas Empresas-SEBRAE]. In particular, for 2009, the average time for legally establishing a new firm was approximately 20 days, in contrast with an average of 152 days in the more distant past. Moreover, evidence appears to indicate that the simplified taxation favored firm formality (see Fajnzylber et al. (2011)).

The possible role of targeted incentives to firms is addressed in Santarelli and Vivarelli (2002) and Girma et al. (2007).

The motivation for firm-specific shocks indicated by that model does not discard, of course, the relevance of observable control to be considered in the econometric analysis at the sectoral level. In fact, the market structure, as approximated by the Herfindahl concentration index, is a salient example because those dynamic theoretical models focus on unobserved firm-level factors in a more competitive environment.

The term frailty was coined by Vaupel et al. (1979) in a univariate context; a multivariate application was considered by Clayton (1978) but without the use of the referred term.

For an overview of the biases accruing from ignoring frailty in the analysis of proportional hazards models, see Henderson and Oman (1999).

A similar criterion was considered by Kosová and Lafontaine (2010) in the context of US franchising.

As later explained in Sect. 3.2, to manage the limitations of the proportional hazard assumption, we consider some covariates that interact with time.

The variables characterize a discrete time hazard model with time-varying covariates.

For this variable, we consider firms with at least one employee because those listed with 0 employees were managed by an unspecified number of owners, whereas for explanatory factors such as entry rate, one considered the totality of firms in the sector. Once more, it is reassuring that the empirical results remain essentially similar irrespective of those filters.

A shortcoming of that work is that the data set merges heterogeneous sub-samples that refer to plants and firms.

Mata and Portugal (1994) also considered a covariate pertaining to entrants’ size (in terms of the logarithm of the employment in new firms in the industry). The variable aimed to capture the size effect of new firms taken as a group and therefore highlights the role of entrants’ scale in affecting the survival of newly created SMEs. In the present application, the large correlation (0.895) with industry size motivated its exclusion of entrants’ size, though the results are nonetheless robust.

Given the logarithmic specification of the firm size variable, the model considers firms with at least 1 employee, so as to avoid the cases of firms that are managed by the owner (those with 0 employees).

In our chosen specification, the estimated parameter was larger than the parameter without the gamma frailty, which confirms the fact already mentioned result that not accounting for unobserved heterogeneity causes an underestimation of the increase in the hazard rate along with duration, and it mitigates the effects of the covariates on the hazard rate.

The related results are not reported for conciseness but can be provided upon request.

It would be beyond the scope of the paper to implement similar diagnoses of firm size distributions in Brazil. Moreover, the consideration of the totality of firms (not only newly created firms) would require proxies for ages that are not readily available.

The definition adopted by BNDES for firm size is different from the one used in this paper, but the new importance attributed to SMEs is evident.

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Titel: Determinants of survival of newly created SMEs in the Brazilian manufacturing industry: an econometric study
verfasst von: Marcelo Resende
Vicente Cardoso
Luis Otávio Façanha
Publikationsdatum: 01.06.2016
Verlag: Springer Berlin Heidelberg
Erschienen in: Empirical Economics / Ausgabe 4/2016
Print ISSN: 0377-7332
Elektronische ISSN: 1435-8921
DOI: https://doi.org/10.1007/s00181-015-0981-4

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