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Small Business Economics

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01.10.2014

Metropolitan innovation, firm size, and business survival in a high-tech industry

verfasst von: Alexandra Tsvetkova, Jean-Claude Thill, Deborah Strumsky

Erschienen in: Small Business Economics | Ausgabe 3/2014

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Abstract

This paper contributes to the growing body of business survival literature that focuses on regional determinants of the hazard faced by firms. Using parametric survival analysis, we test the effects of regional innovation on exit likelihood in the US computer and electronic product manufacturing during the 1992–2008 period. The novelty of our approach is in conditioning the effects of metropolitan innovation on firm size. Estimation results suggest a negative relationship between metropolitan patenting activity and survival of firms that started with 1–3 employees. This effect decreases if companies grow. Establishments with more than 4 employees at start-up are insensitive to metropolitan innovation, although size of firms that started with 4–9 employees improves their survival chances. These findings indicate that local knowledge spillovers do not translate into lower hazard. The negative relationship indicates either a creative destruction regime or decisions of entrepreneurs to shut down existing ventures in order to pursue other opportunities.

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Marx and Engels coined the term ‘creative destruction’ in The Communist Manifesto first published in 1848. Here, we use the Schumpeterian perspective on creative destruction (Schumpeter derived his notion of ‘creative destruction’ from the Marxist definition), which has a different meaning from the one originally proposed.

We use the terms “business longevity” and “business survival” interchangeably throughout the paper.

The industry consists of NAICS 3341 (computer and peripheral equipment manufacturing), NAICS 3342 (communications equipment manufacturing), NAICS 3343 (audio and video equipment manufacturing), NAICS 3344 (semiconductor and other electronic component manufacturing), NAICS 3345 (navigational, measuring, electromedical, and control instruments manufacturing), and NAICS 3346 (manufacturing and reproducing magnetic and optical media).

http://www.bea.gov/industry/gdpbyind_data.htm.

For instance, the multiplier effect of computer manufacturing is estimated to be 16 in California (DeVol et al. 2009).

Modeling frailty as gamma distributed is standard practice (Hougaard 1995).

Evaluation of a patent application is a lengthy process; in addition, there may be a delay in the US PTO system reporting of the number of patents granted. Arguably for these reasons, patent counts reported by the US PTO at the time the data were retrieved for this study decrease sharply for the last 3 years covered by the analysis. To mitigate a potential bias in estimation due to the measurement error we inflate patent counts in the years 2006, 2007, and 2008 by 5, 10, and 15 %, respectively.

Several studies, however, report statistically insignificant effect of size on the probability of exit (Audretsch et al. 2000; Saridakis et al. 2008).

To ascertain that our estimates do not suffer from multicollinarity, we perform a check suggested by Allison (2010) by regressing regional independent variables on firm age. The VIF statistics for all controls do not exceed 1.03, which is well below 2.5, a conservative ‘critical value’ that would indicate a multicollinearity problem.

MSAs that have zero graduates are assigned 0.001 graduates (approximately 5 % of the smallest actual number) in order for the logarithm to be determined.

The value of variable Size in our dataset is zero for such companies. This is because we use a logarithmic transformation of the actual size in our models.

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Titel: Metropolitan innovation, firm size, and business survival in a high-tech industry
verfasst von: Alexandra Tsvetkova
Jean-Claude Thill
Deborah Strumsky
Publikationsdatum: 01.10.2014
Verlag: Springer US
Erschienen in: Small Business Economics / Ausgabe 3/2014
Print ISSN: 0921-898X
Elektronische ISSN: 1573-0913
DOI: https://doi.org/10.1007/s11187-014-9550-z

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