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Age, diversification and survival in the German machine tool industry, 1953-2002

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  • Alex Coad
  • Christina Guenther

Abstract

We focus on the relationship of age and diversification patterns of German machine tool manufacturers in the post war era. Based on trade journals we track the entire firm populations' product portfolio development throughout each firm's lifetime. We distinguish between 'minor diversification' and 'major diversification', where these two concepts refer to adding a new product variation within a familiar submarket, or expanding the product portfolio into new submarkets. Our analysis reveals four main insights. First, we observe that firms have lower diversification rates as they grow older, and that eventually diversification rates even turn negative for old firms on average. Second, we find that product portfolios of larger firms tend to be more diversified. Third, with respect to consecutive diversification activities, quantile autoregression plots show that firms experiencing diversification in one period are unlikely to repeat this behavior in the following year. Fourth, survival estimations reveal that diversification activities reduce the risk of exit controlling for various additional firm and industry specific fixed effects and business cycles. These results are interpreted using the Penrosean growth theory.

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Bibliographic Info

Paper provided by Max Planck Institute of Economics, Evolutionary Economics Group in its series Papers on Economics and Evolution with number 2011-23.

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Length: 30 pages
Date of creation: 03 Jan 2012
Date of revision:
Handle: RePEc:esi:evopap:2011-23

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Related research

Keywords: Diversification; industry evolution; firm age; firm growth; machine tools;

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  1. Steven Klepper & Peter Thompson, 2006. "Submarkets and the evolution of market structure," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 861-886, December.
  2. Teece, David J. & Rumelt, Richard & Dosi, Giovanni & Winter, Sidney, 1994. "Understanding corporate coherence : Theory and evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 23(1), pages 1-30, January.
  3. Coad, Alex & Segarra Blasco, Agustí & Teruel Carrizosa, Mercedes, 2010. "Like milk or wine: Does firm performance improve with age?," Working Papers 2072/179572, Universitat Rovira i Virgili, Department of Economics.
  4. Alex Coad, 2009. "Investigating the exponential age distribution of firms," Papers on Economics and Evolution 2009-23, Max Planck Institute of Economics, Evolutionary Economics Group.
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  8. Alex Coad & Jaganaddha Tamvada, 2012. "Firm growth and barriers to growth among small firms in India," Small Business Economics, Springer, vol. 39(2), pages 383-400, September.
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  14. Youngki Lee & Luis A. N. Amaral & David Canning & Martin Meyer & H. Eugene Stanley, 1998. "Universal features in the growth dynamics of complex organizations," Papers cond-mat/9804100, arXiv.org.
  15. Marshall, Alfred, 1890. "The Principles of Economics," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number marshall1890.
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