Firm Birth Rates Research Articles

The role of relatedness in firm interrelationships

PurposeThis paper analyses how firm births and deaths are influenced by previous firm births and deaths in related and unrelated sectors. Competition and multiplier effects are used as the theoretical lens for this analysis.Design/methodology/approachThis paper uses 2008–2016 Irish business demography data pertaining to 568 NACE 4-digit sectors within 20 NACE 1-digit industries across 34 Irish county and sub-county regions within 8 NUTS3 regions. A three-stage least squares (3SLS) estimation is used to analyse the impact of past firm deaths (births) on future firm births (deaths). The effect of relatedness on firm interrelationships is explicitly modelled and captured.FindingsFindings indicate that the multiplier effect operates mostly through related sectors, while the competition effect operates mostly through unrelated sectors.Research limitations/implicationsThis paper's findings show that firm interrelationships are significantly influenced by the degree of relatedness between firms. The raw data used to calculate firm birth and death rates in this analysis are count data. Each new firm is measured the same as another regardless of differing features like size. Some research has shown that smaller firms have a greater propensity to create entrepreneurs (Parker, 2009). Thus, it is possible that the death of differently sized firms may contribute differently to multiplier effects where births induce further births. Future research could seek to examine this.Practical implicationsThese findings have implications for policy initiatives concerned with increasing entrepreneurship. Some express concerns that public investment into entrepreneurship can lead to “crowding out” effects (Cumming and Johan, 2019), meaning that public investment into entrepreneurship could displace or reduce private investment into entrepreneurship (Audretsch and Fiedler, 2023; Zikou et al., 2017). This study’s findings indicate that using public investment to increase firm births could increase future firm births in related and unrelated sectors. However, more negative “crowding out” effects may also occur in unrelated sectors, meaning that public investment which stimulates firm births in a certain sector could induce firm deaths and crowd out entrepreneurship in unrelated sectors.Originality/valueThis paper is the first in the literature to explicitly account for the role of relatedness in firm interrelationships.

A multilevel approach to firm interrelationships across European regions

ABSTRACT Policymakers attempt to foster entrepreneurship within European regions yet firm interrelationships across European regions remain understudied. This paper analyses the extent to which past firm births and deaths influence future firm births and deaths across European NUTS 2 regions through the lens of competition, multiplier and Marshall effects. Using a novel multilevel mixed effects regression model, we find evidence for an immediate multiplier effect changing to a competition effect as time passes across European regions and countries. We also identify that significant variations in firm birth and death rates exist across European regions validating the importance of more decentralized regional entrepreneurial policies which has implications for policies like the European Regional Development Fund’s (ERDF) Cohesion Plan and the Smart Specialization Strategy.

ICT diffusion in public administrations and business dynamics: Evidence from Italian municipalities

AbstractPublic administrations have been adopting information and communication technologies (ICT) to transform their internal organization and provide better public services to citizens and firms. However, the external benefits, despite being deemed relevant, have been empirically overlooked. We first explore the relation between ICT diffusion in public administrations and business demography at the municipal level by studying the Italian context. Our results show that ICT diffusion in the PA contributes to significantly reducing the death rate of firms and boosting their turnover rate. The adoption of ICT in the PA also exerts a positive impact on the firm birth rate, although it is not statistically significant. These results shed light on the importance of promoting e‐government and framing coherent digital agendas as public instruments for supporting entrepreneurship and regional economic development.

Are the problem spaces of economic actors increasingly virtual? What geo-located web activity might tell us about economic dynamism

The principal questions this research will address are: 1) whether a higher propensity to visit websites of interest to actual or nascent entrepreneurs is associated with higher rates of new firms births in an area; 2) whether a higher propensity to visit websites of interest to those working on design problems is associated with the quality of business in terms of orientations toward design or innovation; and 3) whether a higher propensity to visit websites of interest to those pursuing arts as an avocation is associated with an increased ability to find nonobvious solutions that might be manifest in business quality. The unique data that allow examining these questions were compiled from billions of web hits by geo-located devices. These data are combined with both detailed establishment level data with reliable information on the innovation and design orientation of firms, and a longitudinal census of all establishments with a formal credit relationship in the U.S. The findings confirm that businesses located in areas with a high propensity to visit design and arts avocation websites are more likely to pursue more far ranging innovation and are more likely to integrate design into their innovation processes. Firm birth rates are higher in areas with a high propensity to visit websites of interest to entrepreneurs, and the existence of high growth firms is strongly associated with demonstrated interest in design and arts avocation websites. The possible uses of these nontraditional measures as indicators of economic dynamism are discussed.

The impact of regulation on private security industry dynamics

As the amount of regulation continues to increase and private security firms play a more and more vital role in a modern society’s security, policy makers and practitioners acknowledge the need for sound research. Moreover, studying regulation and private security industry dynamics can enable a better alignment of regulation to its objectives, namely to control abusive and corrupt conduct of some private security companies and to improve the professionalism of the industry. Using novel data on the width and the restrictiveness of private security regulation and data on firm birth rate, firm death rate and firm survival rate, an instrumental variable approach is employed in a panel data random effect models, covering the period from 2013 to 2017. As regulation increases, we document a decrease in firm birth rate, firm death rate as well as firm survival rate of recent newcomers. Regarding firm birth rate and death rate, we document a gradually decreasing impact of older regulation. However, while additional regulation negatively affects survival rate, we find no impact of older regulation on company survival. Incumbents clearly gain an advantage from lobbying to increase regulation and consequently raising barriers to entry.

Do contextual factors influence entrepreneurship? Spain’s regional evidences

This paper examines the socioeconomical forces influencing entrepreneurial activity at both the regional and country level in Spain during the period from 2000 to 2017. Using institutional data, we find significant differences in new firm formation rates by regions. Such variations in firm birth rates are mainly explained by economic growth, unemployment, establishment size, and human capital. Moreover, human capital greatly determines the effect of research and development investment on new firm formation rates. As a result, our work enriches our knowledge of the socioeconomical drivers motivating entrepreneurial action.

Using QCA to explain firm demography in the European Union

Entrepreneurship is currently considered one of the major foundations of economic growth. There is a strong tendency to understand entrepreneurship as technology, self-employment, new ideas, innovation, or wealth creation. We can thus expect more developed countries to show higher growth rates, given the importance of firms' development for economic and social growth. For this reason, it is important to determine the conditions that have the greatest influence on entrepreneurship dynamics at the macroeconomic level. Using firm birth and death rates (related to business dynamics and entrepreneurship), we focus on the European Union and use qualitative comparative analysis techniques to determine the necessary and sufficient conditions for business dynamics. After dividing the whole EU sample into cohesion and non-cohesion countries, we find that entrepreneurship in cohesion countries is driven by necessity, while in non-cohesion countries, it is driven by opportunity.

Unemployment and Entrepreneurship in the Mid-Atlantic Region of the United States: A Spatial Panel Data Analysis

Studies of whether unemployment leads to more or fewer firm births and whether firm births reduce unemployment have produced mixed, inconclusive, and even conflicting results. A group of studies have attempted to reconcile these findings by exploring the possibility that the assumed linear relationship may break down and become non-linear, as might be the case if the relationships were space- and time-variant. However, these studies have also produced inconclusive results. The current study extends the analysis in this small but growing literature from the usual single- and multi-country level to the sub-country level while paying particular attention to the role of spatial effects in the firm creation process. We do this by combining spatial exploratory data analysis and spatial econometrics based on panel data for 365 counties in the Mid-Atlantic region from 1999 to 2010. The results show that spatial effects play a crucial role in this process and that ignoring them substantially underestimates the long-run effects of unemployment on firm births. The results also reveal a robust and statistically significant inverted U-shaped relationship in which rising unemployment raises the firm birth rate up to a certain threshold. In addition, a U-shaped relationship where rising firm births lower unemployment for a period but subsequently increase it is observed. These non-linear results help explain some of the conflicting findings in the literature.

The foreign business and domestic enterprise relationship: Its implications for local entrepreneurial resilience

Both domestic small- and medium-sized enterprises and foreign direct investment are often seen as key parts in helping economies to withstand and recover from shocks. What is less clear is the impact that a greater presence of foreign-owned firms has on domestic enterprises’ ability to withstand such shocks and for entrepreneurial activity to renew itself after economic shocks, described as local entrepreneurial resilience. To examine how foreign influence affects local entrepreneurial resilience rather than considering the relationship between foreign influence and domestic firm births or deaths at a given point in time, this study takes a more dynamic perspective. The relationship between foreign influence and the change in local firm births, deaths, and their overall impact in terms of net births and business churn after the financial crisis is examined. UK data are examined at the local level to account for the within-region heterogeneity of foreign investments that will lead to quite different outcomes being found for domestic enterprises in the same regions. The results indicate that those areas with greater foreign business influence in the labour market are likely to have seen firm birth rates remain higher and recover more quickly. There are policy implications for localities with both higher and lower levels of foreign business ownership.

Entrepreneurial Reward and Firm Birth Rate

The aim of the present paper is to show that entrepreneurial caliber and firm birth rate (start-ups) are very highly positively related and thus can be used alternatively as indicators for entrepreneurial talent. This fact enables researchers to use either of these above two indicators according to the availability of data. Our panel data sample covers annually the following countries: Belgium, Finland, France, Germany, Greece, Italy, Netherlands, Portugal, Spain and UK for the period (2004-2006), the countries Ireland, Norway and Sweden for the period (2004-2005) and the United Stated for the period (1980-2006). Data for Europe are taken from Eurostat, while for the United States are kindly offered by the United States Census Bureau.

The impact of taxes and regulations on firm births and deaths in state border counties

Purpose– The purpose of this paper is to examine the influence of the institutional environment on firm birth and death rates. It is hypothesized that high taxation levels, large government size, high levels of unionization and high minimum wages will be associated with relatively low firm birth and death rates.Design/methodology/approach– This study makes use of a set of custom tabulations from the US Census Bureau that contain data on county-level firm births and deaths. To account for differences in state policies, matched contiguous counties located on state borders are used to calculate matched birth and death ratios.Findings– In the sample of eastern US state border counties, state taxation levels and minimum wages had no significant relationship with firm birth rates, but there was a negative relationship between state union densities and firm birth rates. Both state education and public welfare expenditures were marginally negatively related to firm birth rates. State public welfare expenditures were negatively related to firm death rates, while a marginally significant negative relationship between hospital/health expenditures and firm death rates was observed.Research limitations/implications– These results indicate that state government expenditures may have varying influences on firm birth and death rates, and that high union densities may deter new firm entry.Originality/value– This paper makes use of a county matching technique to help control for confounding variables, allowing for differences in state policies to be better accounted for.

Foreign direct investment and the SME sector

Purpose– Although foreign direct investment and entrepreneurship are potential routes to recovery (Girma and Wakelin, 2001; Lyonet al., 2002), existing literature is divided on the relationship between the two. The purpose of this paper is to examine the influence of foreign investment on the local SME sector after the 2008 financial crisis.Design/methodology/approach– Local authority district data from Great Britain is used to examine the influence of foreign firm employment on the size of the local SME sector as a proportion of all firms, and foreign firm influence on firm births in the locality. In order to control for local geographical, infrastructural and economic conditions regression analysis is used to examine the relationship between foreign business employment and indigenous business activities.Findings– The potential for technological spillovers and spinout activities appears to dominate with firm birth rates higher where there is greater foreign firm employment. However, there is also evidence of crowding out in relation to the existing SME sector, which is found to be reduced in size where foreign influence through employment is greater.Research limitations/implications– The results here indicating a complementarity relationship between foreign influence on employment and firm births is important for policy makers looking to revive struggling local economies. However, the relevant support needs to be in place to maximise the benefit from the supply of new entrepreneurs generated.Originality/value– Unlike many other studies the relationship between the SME sector, firm births and foreign influence is considered at a local level and where economic conditions are more uncertain and economic recovery is less taken for granted. A better understanding of the relationship allows more appropriate policy to be developed in order to aid local economies to recover.

Business Policies and New Firm Birth Rates Internationally

The creation of new businesses is vitally important to a healthy economy. Governments can enact laws and enforcement policies to foster and protect business. Or, the priority in some countries can be to protect employees and labor organizations. We examine how the business policies and laws enacted foster or inhibit new firm births in 19 countries. Firm birth rates are analyzed in countries with various business polices and control for legal environments, quality of government, and cultural variables. We conclude that policies which inhibit large firm competitiveness also foster more new firm births. Policies that give large firms an advantage seem to restrain firm births. High accounting standards favor the specialization ability of large firms and reduce new firm startups. Firm death rates are also examined.

Progressive taxes and firm births

Tax reform proposals in the spirit of the “flat tax” model typically aim to reduce three parameters: the average tax burden, the progressivity of the tax schedule, and the complexity of the tax code. We explore the implications of changes in these parameters for entrepreneurial activity, measured by counts of firm births. The Swiss fiscal system offers sufficient intra-national variation in tax codes to allow us to estimate such effects with considerable precision. We find that high average taxes and complicated tax codes depress firm birth rates, while tax progressivity per se promotes firm births. The latter result supports the existence of an insurance effect from progressive corporate income taxes for risk-averse entrepreneurs. However, implied elasticities with respect to the level and complexity of corporate taxes are an order of magnitude larger than elasticities with respect to the progressivity of tax schedules.

The Effect of Triple Helix System and Habitat on Regional Entrepreneurship: Empirical Evidence from the U.S.

The ‘triple helix’ of the university–industry–government relationship and habitat are accepted as important determinants of innovation and entrepreneurship. However, empirical explorations of the effects of these variables and their interrelationships on regional entrepreneurial activities are highly limited. To fill this gap, we investigate the effect of the triple helix system and habitat on birth and death rates of U.S. firms at the state level. As expected, we find that industrial R&D expenditure plays an important role in promoting regional firm birth. However, university and government R&D also generate a synergistic effect that indirectly influences regional firm birth rates. In addition, we find that the synergy between university and industrial R&D enhances the sustainability of firms, while the interactions between (1) university and government R&D and (2) government and industrial R&D are associated with an increase in firm death. Other factors linked to more favorable conditions for firm formation include higher educational attainment in a region, lower tax rate, and habitat factors affecting quality of life, such as lower housing prices and higher rates of health insurance coverage. In regions with high entrepreneurial activity, we find positive synergistic effects of the interactions between (1) university and government R&D and (2) university and industrial R&D on firm birth rate, suggesting that university R&D plays an important role as an ‘entrepreneurial mediator’ among the three spheres in the triple helix system. In low entrepreneurial regions, the only triple helix system factors significantly influencing firm birth rate were tax rate. This finding suggests that the independent and interdependent components of the triple helix system and habitat are less powerful in low entrepreneurial regions.

The effect of the triple helix system and habitat on regional entrepreneurship: Empirical evidence from the U.S.

The ‘triple helix’ of the university–industry–government relationship and habitat are accepted as important determinants of innovation and entrepreneurship. However, empirical explorations of the effects of these variables and their interrelationships on regional entrepreneurial activities are highly limited. To fill this gap, we investigate the effect of the triple helix system and habitat on birth and death rates of U.S. firms at the state level. As expected, we find that industrial R&D expenditure plays an important role in promoting regional firm birth. However, university and government R&D also generate a synergistic effect that indirectly influences regional firm birth rates. In addition, we find that the synergy between university and industrial R&D enhances the sustainability of firms, while the interactions between (1) university and government R&D and (2) government and industrial R&D are associated with an increase in firm death. Other factors linked to more favorable conditions for firm formation include higher educational attainment in a region, lower tax rate, and habitat factors affecting quality of life, such as lower housing prices and higher rates of health insurance coverage. In regions with high entrepreneurial activity, we find positive synergistic effects of the interactions between (1) university and government R&D and (2) university and industrial R&D on firm birth rate, suggesting that university R&D plays an important role as an ‘entrepreneurial mediator’ among the three spheres in the triple helix system. In low entrepreneurial regions, the only triple helix system factors significantly influencing firm birth rate were tax rate. This finding suggests that the independent and interdependent components of the triple helix system and habitat are less powerful in low entrepreneurial regions.

Cultural diversity and entrepreneurship: a regional analysis for Germany

In this paper, we investigate the determinants of entrepreneurial activity in a cross section of German regions for the period 1998–2005. Departing from the knowledge spillover theory of entrepreneurship, the focus of our analysis is on the role of the regional environment and, in particular, knowledge and cultural diversity. Our main hypothesis is that both, knowledge and diversity, have a positive impact on new firm formation. As the determinants of regional firm birth rates might differ considerably with respect to the necessary technology and knowledge input, we consider start-ups at different technology levels. The regression results indicate that regions with a high level of knowledge provide more opportunities for entrepreneurship than other regions. Moreover, while sectoral diversity tends to dampen new firm foundation, cultural diversity has a positive impact on technology oriented start-ups. This suggests that the diversity of people is more conducive to entrepreneurship than the diversity of firms. Thus, regions characterized by a high level of knowledge and cultural diversity form an ideal breeding ground for technology oriented start-ups.

Critical growth factors of ICT start‐ups

PurposeThe present study in this paper seeks to deal with the crucial topic of growth determinants for ICT start‐ups. In this emerging industry high firm birth rates go hand in hand with a great risk of failure and only one firm out of three survives the first three years.Design/methodology/approachThe paper analyzes 220 start‐ups of the ICT service sector and verifies the influence of individual and organisational factors on growth.FindingsThe paper finds that human capital and working experience have no significant impact on the success of young ICT firms.Originality/valueThe paper shows that critical growth factors are mostly financing and customer related variables (firm size and capital at start‐up, customer structure, regional market orientation, etc.).

Targeting Firm Births and Economic Regeneration in a Lagging Region

This paper provides a critical evaluation of the practice of targeting the firm birth rate as part of a regional regeneration policy. It raises some fundamental questions about the appropriateness of such a practice and shows that different specifications of the birth rate generate very different implications for policy intervention, as measured by the number of births required. It also demonstrates that even when the specification is agreed, the translation of the target into actual numbers of births is far from straightforward, especially where the target aspires to match a region’s performance with what is going on elsewhere and where the survival rate of businesses is also being targeted in parallel. The North East of England is used as the particular context for the evaluation, although the discussion has much wider applicability.

Creativity and Entrepreneurship: A Regional Analysis of New Firm Formation

Lee S. Y., Florida R. and Acs Z. J. (2004) Creativity and entrepreneurship: a regional analysis of new firm formation, Regional Studies38, 879-891. Understanding the factors that promote or mitigate new firm birth is crucial to regional economic development efforts, since a high level of new firm creation significantly contributes to regional economic vitality and is a major signal of a dynamic economy. The literature suggests that various factors such as unemployment, population density/ growth, industrial structure, human capital, the availability of financing and entrepreneurial characteristics significantly influence regional variation in new firm birth rates. This study explores whether connections exist among regional social characteristics, human capital and new firm formation. It argues that social diversity and creativity have a positive relationship with new firm formation. Building on the contributions of urbanist Jane Jacobs, Lee, Florida and Gates (2002) showed that social diversity and human...