The effect of industry maturity, turnover and competition on firm survival: evidence from Slovenian firms

Abstract

A complementary log-log firm survival model using a 10-year panel of firm-level data for the Slovenian manufacturing sector during the late transition period provide evidence that firms have a smaller chance of surviving in less concentrated industries with tougher competition, in mature industries characterised by higher industry average firm age and lower net entry rates, and in industries with high turnover rates, indicating low sunk cost and other entry/exit barriers. Observing the hazard functions of various industry groups further suggests that an industry's entry/exit conditions are even more relevant to firm survival than an industry's life-cycle phase. Moreover, a firm's age seems to be of greater importance for its survival during the early stages of the industry's life cycle than in the industry's maturity. Our findings suggest that economic policy measures aimed at providing support for start-up firms will be more efficient in young industries at the formative stage of the life cycle or in entrepreneurial regime industries, and that entry conditions should be the focus of competition policies.

Acknowledgement

We are particularly grateful to K. Žigić for helpful advice and comments.

Notes

^1. TFP is estimated as the residual in production function estimates based on firm-level panel data. Simultaneity bias, which is usually referred to as the endogeneity of production inputs, created by a correlation between unobservable productivity shocks and input levels, is controlled for as proposed by Levinsohn and Petrin (2003).

^2. Rho is the ratio of the heterogeneity variance to one plus the heterogeneity variance; the Chi-bar²(01) statistic is 0.0000122 with prob > = chibar2 = 0.497.