Firm exits as a determinant of new entry: Is there evidence of local creative destruction?

This study posits that a local process of creative destruction provides an impetus to regional industrial renewal. We argue that exits of older firms release resources that stimulate local entry. New entrants add value to these resources by redeploying them in more productive uses. We test our hypot...

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Bibliographic Details
Published in:Journal of business venturing 2008-05, Vol.23 (3), p.280-306
Main Authors: Pe'er, Aviad, Vertinsky, Ilan
Format: Article
Language:English
Subjects:
Agglomeration
Entry
Exit
Local renewal
Manufacturers
Market entry
Market exit
Productivity
Studies
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Summary:This study posits that a local process of creative destruction provides an impetus to regional industrial renewal. We argue that exits of older firms release resources that stimulate local entry. New entrants add value to these resources by redeploying them in more productive uses. We test our hypotheses with a unique longitudinal database encompassing the entry and exit of Canadian manufacturing enterprises. We find that exits of old firms increase entry and that on average new entrants are more productive. Persistent high local rates of exit, however, deter entry.
ISSN:0883-9026
1873-2003
DOI:10.1016/j.jbusvent.2007.02.002