Business Demography in Spain: Determinants of Firm Survival

46 Pages Posted: 8 May 2006

Date Written: April 10, 2006

Abstract

The impact of entry upon market performance depends not only on the number of entries and their size, but also on how long do the firms last. Consequently, there are an increasing number of papers, most of them focused on the United States and restricted to the manufacturing sector, aimed at analysing the post entry performance of firms. Unfortunately, there is not much about this important topic in Spain due to the lack of appropriate longitudinal micro data on firms. The current paper aims to fill this gap by means of a new database covering all sectors of the business economy constructed at the Bank of Spain. We study the determinants of new firm survival using non parametric and parametric procedures especially designed to analyse duration phenomena. We find that larger start ups survive longer and that the probability of exit is larger in sectors with high entry rates and low concentration. One of the contributions of the paper is the inclusion of the initial firm's financial structure among the determinants of survival. Our results suggest that holding debt, instead of equity, has positive and important effects on survival up to some point. Beyond this point, further debt increments have a negative impact on survival, and this effect is more important the higher is the corresponding debt ratio or indebtness of the firm.

Keywords: Firm survival, entry and exit, micro-data

JEL Classification: L11, L25, G33, M13

Suggested Citation

Lopez-Garcia, Paloma and Puente, Sergio, Business Demography in Spain: Determinants of Firm Survival (April 10, 2006). Banco de Espana Research Paper No. WP-0608. Available at SSRN: https://ssrn.com/abstract=901153 or http://dx.doi.org/10.2139/ssrn.901153

Paloma Lopez-Garcia (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Sergio Puente

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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