Growth of New Firms: Which Factors Influence Post-Entry Performance? An Empirical Analysis Based on Swiss Firm Data

Abstract

The aim of this study is to shed light on the factors which determine the post-entry performance of new firms. It is often argued that new firms are the driving force of structural changes and sometimes they are even characterized as an “engine” of economic growth. Nevertheless, the empirical evidence is mixed. Taking into account the high exit rate of new firms, a specific founding cohort does not contribute substantially to new jobs. In this paper, we analyse the contribution of new firms concerning the ability of creating jobs. Furthermore, we investigate the main determinants of post-entry performance, which we derive from existing theoretical concepts based on industrial economic approaches, learning models and founding characteristics. The endogenous variable is employment development. We test our model with data from the Swiss cohort of start-ups of 1996/1997. The results reveal that the important and robust factors determining the post-entry performance are changes in demand, innovation behaviour, human capital, self-financing, seed capital, consultancy and support, assets, legal form, and motives for founding a new firm, such as the possibility to implement own ideas coming from research at university or to escape from unemployment.