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Age, diversification and survival in the German machine tool industry, 1953-2002

  • Alex Coad
  • Christina Guenther

We focus on the relationship of age and diversification patterns of German machine tool manufacturers in the post war era. Based on trade journals we track the entire firm populations' product portfolio development throughout each firm's lifetime. We distinguish between 'minor diversification' and 'major diversification', where these two concepts refer to adding a new product variation within a familiar submarket, or expanding the product portfolio into new submarkets. Our analysis reveals four main insights. First, we observe that firms have lower diversification rates as they grow older, and that eventually diversification rates even turn negative for old firms on average. Second, we find that product portfolios of larger firms tend to be more diversified. Third, with respect to consecutive diversification activities, quantile autoregression plots show that firms experiencing diversification in one period are unlikely to repeat this behavior in the following year. Fourth, survival estimations reveal that diversification activities reduce the risk of exit controlling for various additional firm and industry specific fixed effects and business cycles. These results are interpreted using the Penrosean growth theory.

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File URL: ftp://137.248.191.199/RePEc/esi/discussionpapers/2011-23.pdf
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Paper provided by Philipps University Marburg, Department of Geography in its series Papers on Economics and Evolution with number 2011-23.

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Length: 30 pages
Date of creation: 03 Jan 2012
Date of revision:
Handle: RePEc:esi:evopap:2011-23
Contact details of provider: Postal: Deutschhausstrasse 10, 35032 Marburg
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Web page: http://www.uni-marburg.de/fb19/
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  1. Youngki Lee & Luis A. N. Amaral & David Canning & Martin Meyer & H. Eugene Stanley, 1998. "Universal features in the growth dynamics of complex organizations," Papers cond-mat/9804100, arXiv.org.
  2. S. Klepper & S. Sleeper, 2002. "Entry by Spinoffs," Papers on Economics and Evolution 2002-07, Philipps University Marburg, Department of Geography.
  3. Alex Coad, 2009. "Investigating the exponential age distribution of firms," Papers on Economics and Evolution 2009-23, Philipps University Marburg, Department of Geography.
  4. Coad, Alex & Segarra, Agustí & Teruel, Mercedes, 2013. "Like milk or wine: Does firm performance improve with age?," Structural Change and Economic Dynamics, Elsevier, vol. 24(C), pages 173-189.
  5. Giulio Bottazzi & Angelo Secchi, 2006. "Gibrat's Law and diversification," Industrial and Corporate Change, Oxford University Press, vol. 15(5), pages 847-875, October.
  6. Wagner, Alfred, 1891. "Marshall's Principles of Economics," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 5, pages 319-338.
  7. E. Cefis & O. Marsili & E.J.J Schenk, 2006. "The Effects of Mergers and Acquisitions on the Firm Size Distribution," Working Papers 06-17, Utrecht School of Economics.
  8. Flora Bellone & Patrick Musso & Lionel Nesta & Michel Qu�r�, 2008. "Market selection along the firm life cycle," Industrial and Corporate Change, Oxford University Press, vol. 17(4), pages 753-777, August.
  9. Guido Buenstorf & Christina Guenther, 2007. "No Place like Home? Location choice and firm survival after forced relocation in the German machine tool industry," DRUID Working Papers 07-16, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  10. Mercedes Teruel-Carrizosa, 2010. "Gibrat’s law and the learning process," Small Business Economics, Springer, vol. 34(4), pages 355-373, May.
  11. Alex Coad & Jaganaddha Tamvada, 2012. "Firm growth and barriers to growth among small firms in India," Small Business Economics, Springer, vol. 39(2), pages 383-400, September.
  12. Elena Huergo & Jordi Jaumandreu, 2004. "How Does Probability of Innovation Change with Firm Age?," Small Business Economics, Springer, vol. 22(3_4), pages 193-207, 04.
  13. repec:fiu:wpaper:0303 is not listed on IDEAS
  14. Joao Pedro Azevedo, 2004. "GRQREG: Stata module to graph the coefficients of a quantile regression," Statistical Software Components S437001, Boston College Department of Economics, revised 17 Mar 2011.
  15. Teece, David J. & Rumelt, Richard & Dosi, Giovanni & Winter, Sidney, 1994. "Understanding corporate coherence : Theory and evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 23(1), pages 1-30, January.
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