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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
File Format: application/pdf
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
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Web page: http://www.fiu.edu/orgs/economics/
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Related research
Keywords: shipbuilding firm survival age selection unobserved heterogeneity

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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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  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!]
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