Formation, Growth and Survival; Small Firm Dynamics in the U.S. Economy

Abstract

Establishes an empirically based measure of firm formation dynamics and early growth and answers the question of new firm survival. Using the 1976-1986 United States Establishment Longitudinal Microdata (USELM) files of the U.S. Small Business Administration, an estimate of the number of firms that survive longer than five years is given. Overall, new establishments with 500 or fewer employees show an average survival rate of 39.8% after 6 years. An examination of the results industry by industry show a below average survival rate for finance, insurance and real estate; construction; and retail trade. In contrast, agriculture, forestry and fishing; manufacturing; and wholesale trade firms each have above average survival rates. The survival rate among all service firms is equal to the average for all industries. An examination of firm survival rate results by firm age indicates that few enterprises grow within the first four years. However, between years four and six, this number more than doubles. In addition, the results suggest that firms with the ability to survive have the ability to grow. (SFL)

Keywords: Firm lifecycle, Firm survival, Firm growth, Survival rates, Startups, Firm births, Exit rates, Firm age, Closing firms