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

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  • Alex Coad
  • Christina Guenther

Abstract

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.

Suggested Citation

  • Alex Coad & Christina Guenther, 2012. "Age, diversification and survival in the German machine tool industry, 1953-2002," Papers on Economics and Evolution 2011-23, Philipps University Marburg, Department of Geography.
  • Handle: RePEc:esi:evopap:2011-23
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    References listed on IDEAS

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    1. Steven Klepper & Sally Sleeper, 2005. "Entry by Spinoffs," Management Science, INFORMS, vol. 51(8), pages 1291-1306, August.
    2. Coad, Alex, 2010. "Investigating the exponential age distribution of firms," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 4, pages 1-30.
    3. Giulio Bottazzi & Angelo Secchi, 2006. "Gibrat's Law and diversification," Industrial and Corporate Change, Oxford University Press, vol. 15(5), pages 847-875, October.
    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. Flora Bellone & Patrick Musso & Lionel Nesta & Michel Quere, 2010. "Market Selection Along the Firm Life Cycle," Chapters,in: Innovation, Economic Growth and the Firm, chapter 5 Edward Elgar Publishing.
    6. 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.
    7. 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.
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    12. Mercedes Teruel-Carrizosa, 2010. "Gibrat’s law and the learning process," Small Business Economics, Springer, vol. 34(4), pages 355-373, May.
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    More about this item

    Keywords

    Diversification; industry evolution; firm age; firm growth; machine tools;

    JEL classification:

    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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