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Selection and Firm Survival: Evidence from the Shipbuilding Industry, 1825-1914

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Author Info
Peter Thompson () (Department of Economics, Florida International University)

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Abstract

Several theories of firm performance can explain the well-known observation that survival is positively related to age. However, a more mundane explanation – selection bias driven by variations in firm quality – may also underlie the phenomenon. This paper employs a 90-year plant-level panel data set on the US iron and steel shipbuilding industry of the 19th and early 20th centuries to discriminate between the two explanations. The shipbuilding industry exhibits the usual joint dependency of survival on age and size, but this dependency is eliminated after controlling for heterogeneity by using pre-entry experience as a proxy for firm quality. The evidence points to a dominant role for selection bias in creating the age-dependency of survival. At the same time, pre-entry experience is found to have a large and extremely persistent effect on survival, and this finding is inconsistent with standard explanations for the role of pre-entry experience on firm performance.

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File URL: http://www.fiu.edu/orgs/economics/wp2004/04-04.pdf
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File Function: First version, 2004
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Publisher Info
Paper provided by Florida International University, Department of Economics in its series Working Papers with number 0404.

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Length: 34 pages
Date of creation: Mar 2004
Date of revision:
Publication status: Published in The Review of Economics and Statistics, 87(1):26-36, (2005)
Handle: RePEc:fiu:wpaper:0404

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Postal: Miami, FL 33199
Phone: (305) 348-2316
Fax: (305) 348-1524
Web page: http://www.fiu.edu/orgs/economics/
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Related research
Keywords: shipbuilding; firm survival; age; selection; unobserved heterogeneity;

Other versions of this item:

Find related papers by JEL classification:
N16 - Economic History - - Macroeconomics and Monetary Economics; Growth and Fluctuations - - - Latin America; Caribbean
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Mata, Jose & Portugal, Pedro, 1994. "Life Duration of New Firms," Journal of Industrial Economics, Blackwell Publishing, vol. 42(3), pages 227-45, September. [Downloadable!] (restricted)
  2. Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989. "The Growth and Failure of U.S. Manufacturing Plants," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 671-98, November. [Downloadable!] (restricted)
    Other versions:
  3. S. Klepper & S. Sleeper, 2002. "Entry by Spinoffs," Papers on Economics and Evolution 2002-07, Max Planck Institute of Economics, Evolutionary Economics Group.
  4. Audretsch, David B & Mahmood, Talat, 1995. "New Firm Survival: New Results Using a Hazard Function," The Review of Economics and Statistics, MIT Press, vol. 77(1), pages 97-103, February. [Downloadable!] (restricted)
  5. Boyan Jovanovic & Peter L. Rousseau, 2001. "Vintage Organization Capital," NBER Working Papers 8166, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Peter Thompson, 2008. "The Iron and Steel Shipbuilding Data Set, 1825-1914: Sources, Coverage, and Coding Decisions," Working Papers 0807, Florida International University, Department of Economics. [Downloadable!]
  7. Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1988. "Patterns of Firm Entry and Exit in U.S. Manufacturing Industries," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 495-515, Winter. [Downloadable!] (restricted)
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  8. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May. [Downloadable!] (restricted)
  9. Thomas F. Cooley & Vincenzo Quadrini, 2001. "Financial Markets and Firm Dynamics," American Economic Review, American Economic Association, vol. 91(5), pages 1286-1310, December. [Downloadable!] (restricted)
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  10. Steven Klepper, 2002. "The capabilities of new firms and the evolution of the US automobile industry," Industrial and Corporate Change, Oxford University Press, vol. 11(4), pages 645-666, August.
  11. Steven Klepper, 2002. "Firm Survival and the Evolution of Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 37-61, Spring.
  12. Gian Luca Clementi & Hugo Hopenhayn, . "A Theory of Financing Constraints and Firm Dynamics," GSIA Working Papers 2002-E9, Carnegie Mellon University, Tepper School of Business. [Downloadable!]
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  13. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September. [Downloadable!] (restricted)
  14. Evans, David S, 1987. "The Relationship between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries," Journal of Industrial Economics, Blackwell Publishing, vol. 35(4), pages 567-81, June. [Downloadable!] (restricted)
    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hielke Buddelmeyer & Paul H. Jensen & Elizabeth Webster, 2006. "Innovation and the Determinants of Firm Survival," IZA Discussion Papers 2386, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  2. Peter Thompson, 2008. "The Iron and Steel Shipbuilding Data Set, 1825-1914: Sources, Coverage, and Coding Decisions," Working Papers 0807, Florida International University, Department of Economics. [Downloadable!]
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