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Small Business Economics

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01.12.2008

The death of firms: exploring the effects of environment and birth cohort on firm survival in Sweden

verfasst von: Marcus Box

Erschienen in: Small Business Economics | Ausgabe 4/2008

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Abstract

This paper investigates the death of firms and seizes a long-term perspective. It investigates the life spans of nearly 2,200 firms in seven birth cohorts of Swedish joint-stock companies, founded during seven separate years between 1899 and 1950. Research has traditionally emphasized individual- and micro-oriented factors in explaining post-entry performance, or has often focused on the influence of firm-specific structural factors (firm age and size). A less attended field recognizes environmental forces. This paper focuses on the interaction between the micro and macro levels, and combines structural and environmental factors. Employing a cohort approach, it relates firm survival to firm age and size, as well as to the effect of cohort affiliation and environmental change over time (period effects). During macroeconomic expansion, the risk of death decreases. Cohort effects are also evident. Firms founded during times of economic crisis exhibit lower survival rates. Consequently, cohort affiliation and environmental forces, i.e. period effects, can explain differences in death rates in different firm populations.

Vorheriger Artikel Does securities regulation constrain small business finance? An empirical analysis

Nächster Artikel The impact of foreign direct investment on new firm survival in the UK: evidence for static versus dynamic industries

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There has been some debate regarding the effects of increasing shares of new and small firms; see e.g. Birch (1979), Davis et al. (1996), Davidsson et al. (1998), and Schreyer (2000).

Davidsson and Henrekson (2002, p. 81). See also Brüderl et al. (1992), and Anheier (1996) for overviews and discussions concerning different explanations.

For studies that have investigated and discussed the significance of structural phenomena on post-entry performance, see for instance Audretsch and Mahmood (1995), Audretsch (1995); Carroll and Hannan (2000); Dunne et al. (1988, 1989); Evans (1987); Storey (1990), and Wagner (1994). See also Starbuck (1971).

Several studies that want to capture the dynamics of entry, growth and exit often employ industry-specific (and variable) indicators such as industry growth, industry life-cycle etc. These indicators can in many instances naturally be regarded as environmental. Examples here are Audretsch et al. (2000), Tveterås and Eide (2000), and Segarra and Callejón (2002).

For instance, this stands out as quite clear in Audretsch (2003). A similar impression is given by the thorough overview by Caves (1998).

Some results point to the conclusion that there do not seem to be any relationships: in a cohort study covering a time-span of nearly 15 years, Boeri and Bellmann (1995) had the explicit aim to investigate firm terminations and the business cycle, but found no such relationships.

Mata et al. (1995), Wagner (1999) and Tveterås and Eide (2000) are specific examples of studies that, in different ways, analyze firm survival with a cohort or generation approach. See also Appendix 1.

See for instance Evans (1987), Dunne et al. (1988, 1989), Audretsch (1995) and Wagner (1999).

The preserved archives of the Swedish Patent and Registrations Office (Patent- och registrerings-verket, PRV) are the main source for the investigation. Stockholm has been used as a limit due to the potentially large number of firms that otherwise would have to be included each year. PRV became in 1897 responsible for registration and supervision of all joint-stock companies. Each company was assigned with a registration number, which was maintained throughout its active time. Each individual company can therefore be traced over time in various PRV archives. Since most firms were small, only a smaller share of them had (or reported) any employees. Thus, the ‘best’ or most comparable size-indicators are in this case financial variables (e.g. revenue, assets, stock capital). Nonetheless, for firms that were active for only a few years, asset and revenue data is often hard to obtain (these firms did not leave any artefacts). Hence, stock capital data is the most ‘stable’ size indicator, and it is also easily available in the PRV archives. See Box (2005), pp. 16–23, for a more detailed description.

The conceptions of small, medium and large firms probably vary significantly both over time and across economies. For instance, in the European Union today a micro firm has 0–9 employees, and a small firm has 10–49 employees. Medium-sized firms employ 50–249 persons, while large firms have 250 or more employees. Sweden had previously other classifications: a small firm were traditionally defined as having zero to 200 employees, and a large business as 500 or more; Lundström et al. (1998, pp. 25–27). As another example, in the 1960s the Federation of Swedish Industries seems to have viewed medium (manufacturing) firms as having up to 1,000 employees (Sveriges Industriförbund 1961). This differs significantly from the more present-day definition of 50–249 employees.

For a more thorough study of the Swedish economic development, see Schön (2000).

This discount rate data has been assembled by Edvinsson (2006) and concerns the nominal level. It has been adjusted for inflation by the author, using the CPI from Statistics Sweden.

This might perhaps seem counter-intuitive at first since the coefficient for the interaction term Firm size × GDP growth in models [2] and [4] is positive. Nonetheless, the ‘main-effect’ of the GDP growth covariate is negative (c.f. model [1]) which means that the interaction in question shows that large firms were less sensitive relative to small firms (i.e. had lower hazards). Separate regressions for small and large firms also confirm this.

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Titel: The death of firms: exploring the effects of environment and birth cohort on firm survival in Sweden
verfasst von: Marcus Box
Publikationsdatum: 01.12.2008
Verlag: Springer US
Erschienen in: Small Business Economics / Ausgabe 4/2008
Print ISSN: 0921-898X
Elektronische ISSN: 1573-0913
DOI: https://doi.org/10.1007/s11187-007-9061-2

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