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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. 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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  6. 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.
  7. 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.
  8. 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.
  9. Evans, David S., 1986. "The Relationship Between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries," Working Papers 86-33, C.V. Starr Center for Applied Economics, New York University.
  10. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  11. Thomas F. Cooley & Vincenzo Quadrini, 2001. "Financial Markets and Firm Dynamics," American Economic Review, American Economic Association, vol. 91(5), pages 1286-1310, December.
  12. 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.
  13. Steven Klepper, 2002. "Firm Survival and the Evolution of Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 37-61, Spring.
  14. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
  15. 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.
  16. Bronwyn H. Hall, 1988. "The Relationship Between Firm Size and Firm Growth in the U.S. Manufacturing Sector," NBER Working Papers 1965, National Bureau of Economic Research, Inc.
  17. 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.
  18. 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 Division, number stcb5e, December.
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Cited by:
  1. 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.
  2. 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.
  3. Coad, Alex, 2010. "Investigating the exponential age distribution of firms," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 4(17), pages 1-30.
  4. Buddelmeyer, Hielke & Jensen, Paul H. & Webster, Elizabeth, 2006. "Innovation and the Determinants of Firm Survival," IZA Discussion Papers 2386, Institute for the Study of Labor (IZA).
  5. Iain M. Cockburn & Megan MacGarvie, 2007. "Patents, Thickets, and the Financing of Early-Stage Firms: Evidence from the Software Industry," NBER Working Papers 13644, National Bureau of Economic Research, Inc.
  6. 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.
  7. Roberto Fontana & Lionel Nesta, 2009. "Product Innovation and Survival in a High-Tech Industry," Review of Industrial Organization, Springer, vol. 34(4), pages 287-306, June.
  8. Hanas Cader & John Leatherman, 2011. "Small business survival and sample selection bias," Small Business Economics, Springer, vol. 37(2), pages 155-165, September.
  9. 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.
  10. 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.

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