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Legal Form, Growth and Exit of West German Firms - Empirical Results for Manufacturing, Construction, Trade and Service Industr

Author

Listed:
  • Stahl, Konrad
  • Harhoff, Dietmar
  • Woywode, Michael

Abstract

In this paper we discuss determinants of firm survival and growth in Germany within its pre-1989 boundaries. We argue that the legal form adopted by a firm is an important indicator of the riskiness of projects undertaken, and that firms under limited liability should be characterized by higher than average insolvency and employment growth rates. We test these predictions by considering the survival chances and employment growth rates of various types of enterprises in a sample of approximately 11,000 West German firms from all major sectors of the German economy. We distinguish between voluntary liquidation without losses to creditors, and bankruptcy as forced liquidation. We demonstrate that firms under limited liability are characterized by higher growth and higher insolvency rates than comparable firms under full liability. Surprisingly, the likelihood of insolvencies is a non-monotonic function of firm size while the likelihood of voluntary liquidation decreases monotonically. Firms whose owners are approaching retirement age are characterized by relatively high hazards of voluntary liquidation, while the propensity to insolvency is not affected by the owner?s age. The basic empirical results hold in pooled samples as well as in estimates at the level of the one-digit industries of manufacturing, construction, trade, and services

Suggested Citation

  • Stahl, Konrad & Harhoff, Dietmar & Woywode, Michael, 1996. "Legal Form, Growth and Exit of West German Firms - Empirical Results for Manufacturing, Construction, Trade and Service Industr," CEPR Discussion Papers 1401, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:1401
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    Citations

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    Cited by:

    1. Holtz-Eakin Douglas & Rosen Harvey S, 2005. "Cash Constraints and Business Start-Ups: Deutschmarks Versus Dollars," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-26, February.
    2. José Mata & Pedro Portugal, 2000. "Closure and divestiture by foreign entrants: the impact of entry and post‐entry strategies," Strategic Management Journal, Wiley Blackwell, vol. 21(5), pages 549-562, May.
    3. Pfeiffer, Friedhelm & Reize, Frank, 2000. "Business start-ups by the unemployed -- an econometric analysis based on firm data," Labour Economics, Elsevier, vol. 7(5), pages 629-663, September.
    4. Almus, Matthias & Nerlinger, Eric A. & Steil, Fabian, 1999. "Growth determinants of start-ups in Eastern Germany: a comparison between innovative and non-innovative firms," ZEW Discussion Papers 99-05, ZEW - Leibniz Centre for European Economic Research.
    5. Dietmar Harhoff, 1997. "Incentives to Innovate: A Structural Model of Oligopoly (available only in German!)," CIG Working Papers FS IV 97-09, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).

    More about this item

    Keywords

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    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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