THE IMPACT OF INITIAL FINANCIAL STATE ON FIRM DURATION ACROSS ENTRY COHORTS

Recent theories of industry dynamics emphasize the role of financial frictions in determining post entry performance of firms. Testing these theories has been difficult because of the lack of financial data on small, young and private firms. Using a unique data set, T2LEAP, this paper considers the...

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Bibliographic Details
Published in:The Journal of industrial economics 2010-09, Vol.58 (3), p.661-689
Main Authors: HUYNH, KIM P., PETRUNIA, ROBERT J., VOIA, MARCEL
Format: Article
Language:English
Subjects:
Business structures
Canada
Economic models
Economic theory
Employment
Enterprises
Financial analysis
Financial leverage
Financial performance
Firm theory
Impact analysis
Industrial economics
Labor productivity
Manufacturers
Manufacturing
Market entry
Productivity
Publishing industry
Small and medium sized enterprises
Statistical significance
Studies
Tariffs
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Summary:Recent theories of industry dynamics emphasize the role of financial frictions in determining post entry performance of firms. Testing these theories has been difficult because of the lack of financial data on small, young and private firms. Using a unique data set, T2LEAP, this paper considers the survival of new firms in Canadian manufacturing from a financial perspective. Duration analysis quantifies the effects of firm, industry and aggregate factors. Findings show that nonlinear effects are found with firm leverage. Finally, likelihood decompositions offer insights into the contributing factors to firm hazard for nine entry cohorts during the period 1985–1997.
ISSN:0022-1821
1467-6451
DOI:10.1111/j.1467-6451.2010.00429.x