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

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  • Peter Thompson

    ()
    (Department of Economics, Florida International University)

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://casgroup.fiu.edu/pages/docs/2245/1280267948_04-04.pdf
File Function: First version, 2004
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Bibliographic 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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Web page: http://casgroup.fiu.edu/Economics/
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Keywords: shipbuilding; firm survival; age; selection; unobserved heterogeneity;

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References

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  1. Boyan Jovanovic & Peter L. Rousseau, 2000. "Vintage organization capital," Proceedings, Federal Reserve Bank of San Francisco, issue Apr.
  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.
  3. Evans, David S, 1987. "The Relationship between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 567-81, June.
  4. 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.
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  7. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
  8. P.A. Geroski & José Mata & Pedro Portugal, 2003. "Founding Conditions and the Survival of New Firms," Working Papers w200301, Banco de Portugal, Economics and Research Department.
  9. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  10. Gina Luca Clementi & Hugo A Hopenhayn, 2006. "A Theory of Financing Constraints and Firm Dynamics," The Quarterly Journal of Economics, MIT Press, vol. 121(1), pages 229-265, 02.
  11. Dunne, T. & Roberts, M.J. & Samuelson, L., 1988. "Pattenrs Of Firm Entry And Exit In U.S. Manufacturing Industries," Papers 1-88-2, Pennsylvania State - Department of Economics.
  12. Baldwin, John R. & Bian, Lin & Dupuy, Richard & Gellatly, Guy, 2000. "Failure Rates for New Canadian Firms: New Perspectives on Entry and Exit," Failure Rates for New Canadian Firms: New Perspectives on Entry and Exit, Statistics Canada, Economic Analysis, number stcb5e, December.
  13. 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.
  14. Richard Disney & Jonathan Haskel & Ylva Heden, 2003. "Entry, Exit and Establishment Survival in UK Manufacturing," Journal of Industrial Economics, Wiley Blackwell, vol. 51(1), pages 91-112, 03.
  15. Audretsch, David B, 1991. "New-Firm Survival and the Technological Regime," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 441-50, August.
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  17. Hall, Bronwyn H, 1987. "The Relationship between Firm Size and Firm Growth in the U.S. Manufacturing Sector," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 583-606, June.
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  19. Mata, Jose & Portugal, Pedro, 1994. "Life Duration of New Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 42(3), pages 227-45, September.
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Cited by:
  1. Taylor, Margaret & Taylor, Andrew, 2012. "The technology life cycle: Conceptualization and managerial implications," International Journal of Production Economics, Elsevier, vol. 140(1), pages 541-553.
  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.
  3. Jolanda Hessels & Isabel Grilo & Roy Thurik & Peter Zwan, 2011. "Entrepreneurial exit and entrepreneurial engagement," Journal of Evolutionary Economics, Springer, vol. 21(3), pages 447-471, August.
  4. Hielke Buddelmeyer & Paul H. Jensen & Elizabeth Webster, 2006. "Innovation and the Determinants of Firm Survival," Melbourne Institute Working Paper Series wp2006n15, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  5. Guido Buenstorf & Ulrich Witt, 2006. "How Problems of Organisational Growth in Firms Affect Industry Entry and Exit," Revue de l'OFCE, Presses de Sciences-Po, vol. 97(5), pages 47-62.
  6. Lionel Nesta & Roberto Fontana, 2007. "Product Innovation and Survival in a High-Tech Industry," Sciences Po publications 2007-30, Sciences Po.
  7. Margherita Balconi & Roberto Fontana, 2011. "Entry and innovation: an analysis of the fabless semiconductor business," Small Business Economics, Springer, vol. 37(1), pages 87-106, July.
  8. Nicole Nulsch, 2014. "Is Subsidizing Companies in Difficulties an Optimal Policy? An Empirical Study on the Effectiveness of State Aid in the European Union," IWH Discussion Papers 9, Halle Institute for Economic Research.
  9. 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.
  10. Mano, Yukichi & Suzuki, Aya, 2013. "Industrial Development through Takeovers and Exits: the Case of the Cut Flower Exporters in Ethiopia," Discussion Papers 2013-05, Graduate School of Economics, Hitotsubashi University.
  11. Luis F. Medrano E., 2012. "Patent Citations, University Inventor Patents, and Survival in the German Laser Source Industry (1960-2005)," Jena Economic Research Papers 2012-009, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  12. Hanas Cader & John Leatherman, 2011. "Small business survival and sample selection bias," Small Business Economics, Springer, vol. 37(2), pages 155-165, September.
  13. Huynh, Kim P. & Petrunia, Robert J. & Voia, Marcel, 2012. "Duration of new firms: The role of startup financial conditions, industry and aggregate factors," Structural Change and Economic Dynamics, Elsevier, vol. 23(4), pages 354-362.
  14. repec:spo:wpecon:info:hdl:2441/6127 is not listed on IDEAS

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