Firm Age Distribution Research Articles

The start-up gap and jobs

The present paper uses quarterly data from the social security registry covering the full population of Belgian firms to analyze how the secular decline in the firm entry rate affects aggregate employment. To this end, we disentangle the entry margin into two channels: the overall employment of new firms (the start-up employment) and the share of start-up employment by sector (the sectoral composition of start-ups). We find that the decline in start-up employment slowed down the growth rate of aggregate employment by 26% over the 2009Q2–2017Q1 period by shifting the age distribution of firms toward older firms. The sectoral composition of start-ups accelerated the decline in the manufacturing sector and prevented the distribution sector from a potential decline, while leaving the aggregate employment unchanged.

Are Japanese companies less risky and less profitable than US companies? Evidence from a matched sample

We reexamine the differences in the profitability distributions of listed companies in the United States and Japan. To control for cross-country differences in the industrial composition, firm size, and firm age distribution, we construct a matched sample using Mahalanobis nearest neighbor matching with respect to these factors. The matched sample supports the finding of existing studies that the median and the standard deviation of profitability are significantly higher in the United States than in Japan. Our matched panel data indicate that this difference arises from both larger firm heterogeneity and more intensive risk-taking in the United States. The sector-by-sector analysis shows that the standard deviation gap is larger in the sectors with more intensive churning in asset-size ranking.

Formation, Mortality and Firm Age Distribution in Selected States of India

Firm age and its distribution is related to different parameters of an industry and economy. The shape of the firm age distribution can indicate firm mortality or survival. However, research on firm age distribution is scant in India. Theoretically, firms are ongoing entities, but in reality firms do die and they exhibit a higher mortality during initial years. Thus the risk of exit is higher at initial ages. So what is the behaviour across states? For this study the seven states - Bihar, Kerala, Haryana, Punjab, Odisha, Chhatisgargh and Jharkhand - have been selected according to the similarity in their levels of contribution to the GDP of India. The age data was calculated from the date of registration of the companies as available from the Ministry of Corporate affairs. These companies are active entities as indicated by the Ministry of Corporate Affairs database. All together 92,062 companies were considered for this study and it considers all available active companies as on 2015. Firstly, the statistics can be reasonably considered as parameters for the respective states. Secondly, most of firms are of micro, small and medium enterprise in nature, thus the age distribution characteristics reflect MSME sector as well. However, the data has not been segregated sector-wise. The findings indicate that age distribution closely reflects the status of economy and can serve as one of the indicators of business climate. Policy implications are also discussed in the paper.

Formation, Mortality and Firm Age Distribution in Selected States of India

Firm age and its distribution is related to different parameters of an industry and economy. The shape of firm age distribution can indicate firm mortality or survival. However, research on firm age distribution is scant in India. Theoretically, firms are ongoing entities, but in reality firms do die and they exhibit a higher mortality during initial years. Thus the risk of exit is higher at initial ages. So what is the behaviour across states? For this study, seven states of India- Bihar, Kerala, Haryana, Punjab, Odisha, Chhatisgargh and Jharkhand - have been selected according to the similarity in their levels of contribution to the GDP of India. The age data was calculated from the date of registration of the companies as available from the Ministry of Corporate affairs. These companies are active entities as indicated by the MCA database. All together 92,062 companies were considered for this study and it considers all available active companies as on 2015. Firstly, the statistics can be reasonably considered as parameters for the respective states. Secondly, most of firms are of micro, small and medium enterprise in nature, thus the age distribution characteristics reflect MSME sector as well. However, the data has not been segregated sector-wise. The findings indicate that age distribution closely reflects the status of economy and can serve as one of the indicators of business climate. Policy implications are also discussed in the paper.

Grown-up Business Cycles

The entry rate of U.S. employer businesses has declined for more than 30 years. We use a novel dynamic decomposition framework to show that regardless of its causes, the direct effects of the continued decline in the entry rate and its delayed effects on the firm age distribution together play a major role in the slowing of trend employment growth and the emergence of jobless recoveries. We identify changing demographic structure of the population and increased import competition as leading factors behind the decline in startup activity. Received September 1, 2015; editorial decision April 5, 2018 by Editor Francesca Cornelli. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Older and slower: The startup deficit’s lasting effects on aggregate productivity growth

Declining firm entry and the aging incumbent firms have meaningful implications for sluggish U.S. aggregate productivity growth. We provide a framework to characterize the contributions to industry productivity growth across the firm age distribution then apply it to firm-level Census data. Several findings emerge: the relationship between firm age and productivity growth is downward sloping and convex; the magnitudes are substantial but fade quickly; selection and reallocation predominantly drive higher productivity growth of young firms. Our results suggest a cumulative drag on aggregate productivity of 3.1% since 1980 and are expanded upon with an IV strategy and standard model of firm dynamics.

Dependence of the decay rate of firm activities on firm age

Using the ORBIS database that contains around 150 million firm-size data from all over the world, we investigated firm activity data in Germany, Spain, France, the United Kingdom, Italy, Japan, Korea, and the Netherlands and found that the decay rate of firm activities does not depend on firm age in Spain as in Japan. But in Germany, France, the United Kingdom, Italy, Korea, and the Netherlands, the decay rate of young firms is high and becomes lower and settles at a constant value as firms age. By approximating the decay rate of firm activities by an exponential function, we analytically derived the firm age distribution under the assumptions that the number of firms that is established annually is nearly constant and that the decay rate of firm activities does not change annually. Using empirical data from eight countries, we compared the parameters estimated by the decay rate of the firm activities with those by firm age distribution. Except in Spain and Germany, the two kinds of parameters estimated in two different ways were close to each other.

Investigating the Exponential Age Distribution of Firms

Abstract While several plots of the aggregate age distribution suggest that firm age is exponentially distributed, we find some departures from the exponential benchmark. At the lower tail, we find that very young establishments are more numerous than expected, but they face high exit hazards. At the upper tail, the oldest firms are older than the exponential would have predicted. Furthermore, the age distribution of disaggregated industries (such as the international airline industry) is less regular and can display multimodality. Although we focused on departures from the exponential, we found that the exponential was a useful reference point and endorse it as an appropriate benchmark for future work on industrial structure.

The Exponential Age Distribution and the Pareto Firm Size Distribution

Recent work drawing on data for large and small firms has shown a Pareto distribution of firm size. We begin by showing that the firm age distribution is well approximated by an exponential distribution. We then mix a Gibrat-type growth process among incumbents with an exponential distribution of firm’s age, to obtain the empirically-observed Pareto distribution.

Investigating the Exponential Age Distribution of Firms

While several plots of the aggregate age distribution suggest that firm age is exponentially distributed, we find some departures from the exponential benchmark. At the lower tail, we find that very young establishments are more numerous than expected, but they face high exit hazards. At the upper tail, the oldest firms are older than the exponential would have predicted. Furthermore, the age distribution of disaggregated industries (such as the international airline industry) is less regular and can display multimodality. Although we focused on departures from the exponential, we found that the exponential was a useful reference point and endorse it as an appropriate benchmark for future work on industrial structure. --

Firm Size or Firm Age? The Effect on Wages Using Matched Employer–Employee Data

Abstract. This paper uses matched employer–employee data set for Sweden to study the relationship between firm age and wages, systematically addressing a variety of possible explanations for observing a firm age–wage effect. Results show considerable heterogeneity across years, along segments of the firm age distribution and across industries. For 1995, a positive relationship is found between firm age and wages. This relationship is robust to inclusion of variables that might affect results. Taking into account that larger firms are also older firms, results show that inclusion of firm age does not alter the positive effect of firm size on wages.

The state of the UK surface finishing sector: survival or demise? Part 1

An attempt is made to assess the state of the UK surface finishing sector on the basis of available statistics and discussions with the industry. The age distribution of firms in the sector is considered and the threats from increasing legislative pressures and the tendency to move manufacturing, and hence coating operations, offshore are discussed. Part 2 will look at the international situation, the role of the supply chain and suggest how the industry should respond to the threats identified.

Firm Turnover in Imperfectly Competitive Markets1

This paper is motivated by the empirical regularity that industries differ greatly in the level of firm turnover and that entry and exit rates are positively correlated across industries. Our objective is to investigate the effect of fixed costs and, in particular. market size on entry and exit rates and hence on the age distribution of firms. We analyse a stochastic dynamic model of a monopolistically competitive industry. Each firm's efficiency is assumed to follow a Markov process. We show existence and uniqueness of a stationary equilibrium with simultaneous entry and exit: efficient firms survive, while inefficient ones leave the market and are replaced by new entrants. We perform comparative dynamics with respect to the level of fixed costs: entry costs are negatively related and fixed production costs positively related to entry and exit rates. A central empirical prediction of the model is that the level of firm turnover is increasing in market size. In larger markets, competition is endogenously more intense than in smaller markets, and so price-cost margins are smaller. This price competition effect implies that the marginal surviving firm has to be more efficient than in smaller markets. Hence, in larger markets, the expected lifespan of firms is shorter, and the age distribution of firms is first-order stochastically dominated by that in smaller markets. In the empirical part, the prediction on market size and firm turnover is tested on an industry where firms compete in well-defined geographical markets of different sizes. Using data on hair salons in Sweden, we show that an increase in market size or fixed costs shifts the a-e distribution of firms towards younger firms, as predicted by the model.

Firm Turnover in Imperfectly Competitive Markets

This paper is motivated by the empirical regularity that industries differ greatly in the level of firm turnover, and that entry and exit rates are positively correlated across industries. Our objective is to investigate the effect of sunk costs and, in particular, market size on entry and exit rates, and hence on the age distribution of firms. We analyze a stochastic dynamic model of a monopolistically competitive industry. Each firm's efficiency is assumed to follow a Markov process. We show existence and uniqueness of a stationary equilibrium with simultaneous entry and exit: efficient firms survive while inefficient ones leave the market and are replaced by new entrants. We perform comparative dynamics with respect to the level of sunk costs: entry costs are negatively and fixed production costs positively related to entry and exit rates. A central empirical prediction of the model is that the level of firm turnover is increasing in market size. The intuition is as follows. In larger markets, price-cost margins are smaller since the number of active firms is larger. This implies that the marginal surviving firm has to be more efficient than in smaller markets. Hence, in larger markets, the expected life span of firms is shorter, and the age distribution of firms is first-order stochastically dominated by that in smaller markets. In an extension of the model with time-varying market size, we explore the comovements between market size and entry and exit rates. It is shown that both entry and exit rates tend to rise over time in growing markets. In the empirical part, the prediction on market size and firm turnover is tested on industries where firms compete in well-defined geographical markets of different sizes. Using data on hair salons in Sweden, we show that an increase in market size or fixed costs shifts the age distribution of firms towards younger firms, as predicted by the model.