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The Dynamic Adjustment Process of Firm Entry and Exit in Manufacturing and Finance, Insurance, and Real Estate

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  • Troske, Kenneth R

Abstract

This article examines the dynamic adjustment process of firm entry and exit in manufacturing and finance, insurance, and real estate (FIRE). The object is to extend our knowledge of firm dynamics to include firm exit as well as nonmanufacturing firms. This interindustry comparison of firm dynamics uses a unique longitudinal firm-level data set containing over 13,000 firms. I report three main findings. First, in both industries firm entry is characterized by a decline in the first two moments of the growth rate distributions and by a rise in the first two moments of the relative firm size distribution as firms age. Second, in both industries firm exit is characterized by falling mean growth rates and mean relative firm size for a number of periods prior to exit. Third, relative to FIRE, firm entry and exit in manufacturing is a longer process and involves larger adjustments in relative firm size. Copyright 1996 by the University of Chicago.

Suggested Citation

  • Troske, Kenneth R, 1996. "The Dynamic Adjustment Process of Firm Entry and Exit in Manufacturing and Finance, Insurance, and Real Estate," Journal of Law and Economics, University of Chicago Press, vol. 39(2), pages 705-735, October.
  • Handle: RePEc:ucp:jlawec:v:39:y:1996:i:2:p:705-35
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    File URL: http://dx.doi.org/10.1086/467363
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    References listed on IDEAS

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    1. Richard Baldwin & Paul Krugman, 1989. "Persistent Trade Effects of Large Exchange Rate Shocks," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 635-654.
    2. Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1989. "The Growth and Failure of U. S. Manufacturing Plants," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 671-698.
    3. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
    4. 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 567-581, June.
    5. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-670, May.
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    Cited by:

    1. William J. Carrington, 2015. "Do We Know Why Earnings Fall with Job Displacement? Working Paper: 2015-01," Working Papers 49908, Congressional Budget Office.
    2. Fackler, Daniel & Müller, Steffen & Stegmaier, Jens, 2016. "Plant-level employment development before collective displacements: Comparing mass layoffs, plant closures, and bankruptcies," IWH Discussion Papers 27/2016, Halle Institute for Economic Research (IWH).
    3. Mathias Erlei & Jens-Peter Springmann, 2006. "Small is Successful!?," TUC Working Papers in Economics 0005, Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal).
    4. Sven-olov Daunfeldt & Niklas Rudholm & Fredrik Bergström, 2006. "Entry into Swedish Retail and Wholesale Trade Markets," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 29(3), pages 213-225, November.
    5. Daniel Fackler & Claus Schnabel & Joachim Wagner, 2014. "Lingering illness or sudden death? Pre-exit employment developments in German establishments," Industrial and Corporate Change, Oxford University Press, vol. 23(4), pages 1121-1140.
    6. Lucia Foster & John Haltiwanger & Chad Syverson, 2016. "The Slow Growth of New Plants: Learning about Demand?," Economica, London School of Economics and Political Science, vol. 83(329), pages 91-129, January.
    7. Fan, Terence Ping Ching & Tan, Alex Tai Loong & Geng, Xuesong, 2014. "Rapid capacity expansions and failure: A trap for new airline entrants?," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 61(C), pages 176-191.
    8. Gian Luca Clementi & Hugo Hopenhayn, "undated". "A Theory of Financing Constraints and Firm Dynamics," GSIA Working Papers 2002-E9, Carnegie Mellon University, Tepper School of Business.
    9. H. E. Frech, 2002. "Corporate Demography and Empirical Industrial Organization: A Critical Appraisal," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 9(3), pages 437-448.
    10. Matthew Gentzkow & Jesse M. Shapiro & Michael Sinkinson, 2011. "The Effect of Newspaper Entry and Exit on Electoral Politics," American Economic Review, American Economic Association, vol. 101(7), pages 2980-3018, December.
    11. repec:bla:indres:v:56:y:2017:i:4:p:688-722 is not listed on IDEAS
    12. Carlos Carreira & Paulino Teixeira, 2011. "The shadow of death: analysing the pre-exit productivity of Portuguese manufacturing firms," Small Business Economics, Springer, vol. 36(3), pages 337-351, April.
    13. Renáta Kosová & Francine Lafontaine, 2010. "SURVIVAL AND GROWTH IN RETAIL AND SERVICE INDUSTRIES: EVIDENCE FROM FRANCHISED CHAINS -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 58(3), pages 542-578, September.
    14. Carrington, William J. & Fallick, Bruce C., 2014. "Why Do Earnings Fall with Job Displacement?," Working Paper 1405, Federal Reserve Bank of Cleveland.
    15. Fajnzylber, Pablo & Maloney, William F. & Ribeiro, Eduardo, 2001. "Firm entry and exit, labor demand, and trade reform : evidence from Chile and Colombia," Policy Research Working Paper Series 2659, The World Bank.
    16. repec:eee:labchp:v:3:y:1999:i:pb:p:2711-2805 is not listed on IDEAS
    17. Kosová, Renáta & Lafontaine, Francine, 2012. "Much ado about chains: A research agenda," International Journal of Industrial Organization, Elsevier, vol. 30(3), pages 303-308.
    18. Dunne, Timothy & Merrell, David R., 2001. "Gross employment flows in U.S. coal mining," Economics Letters, Elsevier, vol. 71(2), pages 217-224, May.
    19. Scott Schuh & Robert K. Triest, 1998. "Job reallocation and the business cycle: new facts for an old debate," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 42(Jun), pages 271-357.
    20. Scott Schuh & Robert K Triest, 1998. "Job Reallocation And The Business Cycle: New Facts An Old Debate," Working Papers 98-11, Center for Economic Studies, U.S. Census Bureau.
    21. Prantl, Susanne, 2003. "Bankruptcy and Voluntary Liquidation: Evidence for New Firms in East and West Germany after Unification," ZEW Discussion Papers 03-72, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    22. Harrison Teresa D. & Laincz Christopher A, 2008. "Entry and Exit in the Nonprofit Sector," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-42, July.

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