Abstract
This work investigates the relationship between the characteristics and survival probabilities of firms, distinguishing between “involuntary” firm exit and exit by merger and acquisition (M&A). More in detail, we study how, and to what extent, innovation capabilities, as proxied by patents and trademarks, are able to shape, together with standard performance variables, the observed dynamics at the firm level. By using comprehensive data on Italian firms from business registers, we separate the administrative procedures leading to “involuntary” exit from those ending up with an event of M&A. We find that while higher productivity is associated with a lower probability of “involuntary” exit, productivity increases the chances of being the target for M&A. As far as intellectual property instruments are concerned, they tend to reduce the probability of both “involuntary” exit and M&A. However, the relative importance of the two instruments differs according to the exit route: patents are more relevant than trademarks in preventing “involuntary” exit, while the opposite is true for M&A.Plain English Summary We investigate firm’s exit after a crisis. Overall innovation plays a positive role, but the relative importance of IP depends on the exit route: patents are more relevant than trademarks against “involuntary” exit, while the opposite is true for M&A. We resort to the virtual universe of Italian limited liability firms from manufacturing, trade, and service to investigate the determinants of firm survival over the period 2010–2014. We scrutinize detailed administrative data on significant events occurring to firms to distinguish between events leading to involuntary exit and to M&A. In addition to the evidence on innovation, our results show that higher productivity decreases the probability of “involuntary” exit, yet productivity increases the chances of being the target for M&A. Taken together, these findings warn against a simplistic perspective on exit: the role of innovation and firm characteristics heavily depends on the exit route.
Highlights
The economic and financial crisis in the European Union reached its peak in terms of industrial output in 2009, when the production level fell on average by 14%
We focus on granted patents that have been applied at the United States Patent and Trademark Office (USPTO) or at the European Patent Office (EPO) and
This study investigates the impact of patents and trademarks, as well as other firm-level characteristics, on different exit modes: “involuntary” and merger and acquisition (M&A)
Summary
The economic and financial crisis in the European Union reached its peak in terms of industrial output in 2009, when the production level fell on average by 14%. Thanks to a dataset covering the complete span of economic activities, we are able to investigate the effects associated with firms’ characteristics and with different innovation outputs (patents and trademarks) on the probability of survival (and M&A) in three broad sectors, respectively, manufacturing, trade, and service. We build our first definition of firm death on the type of administrative procedure a firm is undergoing and we only consider procedures unambiguously leading to “involuntary” exit as causes of the firm’s death This way, contrary to many existing related studies, we are able to identify business failures as costly events, clearly associated with a lack of success. To anticipate the main findings, the empirical evidence suggests that IP instruments are relevant in increasing the survival probabilities of firms, but the relative importance of patents and trademarks depends on the mode of exit under analysis.
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