Research Question Can we Relate Post-Entry Performance of Individual establishments to establishment specific characteristics? Prior Work: Audretsch(1991) showed that survival rates of industries happen at industry level and not at business level.
Model hij – baseline rate of hazard Xij – Vector of Covariates containing 3 factors Long run average cost function - degree to which new business is burdened by inherent size disadvantage Technological regime change Industry growth (Price/Cost Margin)
Model contd… To estimate the β’s the Partial Likelihood function Coefficients are estimated by maximizing the PL function.. In case of Ties a modified PL is used.
Model contd.. S(t) – vector of the sum of covariates for episodes at time t, m – number of exits at time t
Data Specification Longitudinal data does not have start and end date [5 year interval used]- Annual Survey of Manufacturers SIC predicted estimation. – data from D&B file provides virtual census 12251 new establishments in 1976 studied for 10 years. Firm specific characteristics –[ innovation rate=number of innovations/employment] Establishment size Industry employment growth , price – cost margin Macroeconomic employment rate , real interest rate (Economic report of president)
Critique While Survival Analysis is right, handling of censoring (right/left and interval) is not handled in his model Not clear whether the coefficients are significant (Wald test of coefficients) Is the model adequate to explain the phenomenon?