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Growth and exit of West German firms: an empirical investigation on the impact of liability statutes

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  • Harhoff, Dietmar
  • Stahl, Konrad O.
  • Woywode, Michael

Abstract

In this paper we discuss determinants of firm survival and growth in Germany within its pre-1989 boundaries. We develop our central hypotheses on the basis of a simple theoretical model describing the self-selection of heterogeneous entrepreneurs into particular legal forms, and the implications for profitability and survival. We also describe institutional details of liability regulation and taxation rules which German entrepreneurs face when choosing a particular legal form for their firms. We then test the predictions of our model by considering the survival chances and employment growth rates of various types of enterprises in a sample of approximately 11000 West German firms in all major sectors of the German economy. in our analysis of firm survival we distinguish between voluntary liquidation without losses to creditors, and bankruptcy as forced liquidation. Firms under limited liability are characterized by higher growth and higher insolvency rates than comparable firm under full liability. We also confirm the previously found negative relationship between employment growth and firm size which persists after controlling for selection biases. The likelihood of insolvencies is a nonmonotonic function of firm size. --

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Bibliographic Info

Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 95-15.

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Date of creation: 1995
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Handle: RePEc:zbw:zewdip:9515

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  1. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-77, December.
  2. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  3. Holl, Peter, 1975. "Effect of Control Type on the Performance of the Firm in the U.K," Journal of Industrial Economics, Wiley Blackwell, vol. 23(4), pages 257-71, June.
  4. Dunne, T. & Roberts, M.J. & Samuelson, L., 1988. "The Growth And Failure Of U.S. Manufacturing Plants," Papers 1-87-5, Pennsylvania State - Department of Economics.
  5. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  6. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  7. 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.
  8. Licht, Georg & Harhoff, Dietmar, 1993. "Das Mannheimer Innovationspanel," ZEW Discussion Papers 93-21, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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Cited by:
  1. Lutz Bellmann & Dietmar Harhoff & Norbert Schulz, 1997. "Zur Analyse von Gründungen und Schließungen auf Grundlage der Beschäftigtenstatistik (only available in German)," CIG Working Papers FS IV 97-46, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  2. Harhoff, Dietmar & Körting, Timm, 1998. "Lending Relationships in Germany: Empirical Results from Survey Data," CEPR Discussion Papers 1917, C.E.P.R. Discussion Papers.

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