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

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

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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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. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  2. Licht, Georg & Harhoff, Dietmar, 1993. "Das Mannheimer Innovationspanel," ZEW Discussion Papers 93-21, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  3. 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.
  4. Evans, David S., 1986. "The Relationship Between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries," Working Papers 86-33, C.V. Starr Center for Applied Economics, New York University.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
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