Entrepreneurial Survival

This paper gives an empirical analysis of determinants of new-firm survival in the manufacturing sector of Baden-Wuerttemberg (Germany) from 1981 to 1994. The analysis focuses on firm- and industry-specific determinants of new-firm survival. A possible effect of regional agglomeration and of the business cycle is also tested, albeit in a very general manner. From a methodical point of view parametric and semiparametric duration models are used. Grouped duration models are estimated taking into account the problem of ties. Moreover, the problem of unobserved heterogeneity is considered which has so far been neglected in numerous studies. The empirical analyses show with respect to industry-specific effects that the risk of new-firm failure is the larger the larger an industry’ s minimum efficient scale is, the worse the sectoral demand-conditions are, the more narrow the market is, the higher dynamics of foundation within an industry are. The liability of smallness-hypothesis is confirmed for German manufacturing while with respect to firm age the results favour the liability of adolescence-hypothesis instead of a pure liability of newness.