Does Entry Size Matter? The Impact of the Life Cycle and Technology on Firm Survival

Abstract

A wave of empirical studies has recently emerged showing that smaller-scale entry is confronted with a lower likelihood of survival than their larger counterparts. The purpose of this paper is to examine whether the relationship between size of a ¢rm when entering an industry and the likelihood of survival holds under di¡erent technological conditions and across the di¡erent stages of the industry life cycle. The empirical evidence suggests that the relationship between ¢rm size and the likelihood of survival is shaped by technology and the stage of the industry life cycle. While the likelihood of survival confronting small entrants is generally less than that confronting their larger counterparts, the relationship does not hold for mature stages of the product life cycle, or in technologically intensive products. In mature industries that are still technologically intensive, entry may be less about radical innovation and possibly more about ¢lling strategic niches, thus negating the impact of entry size on the likelihood of survival.

Firm survival: The role of incubators and business characteristics

“…Various authors (Cockburn and Wagner, 2007;Buddelmeyer et al, 2009) In terms of the size of the business, the question is whether firm size at the start of the life cycle has any effect on subsequent survival (Agarwal and Audretsch, 2001). Some researchers have showed that firms that initiate their activity with a larger size are more likely to grow than firms that start small (Fritsch, Brixy and Falck, 2006).…”

Entrepreneurship and the process of firms' entry, survival and growth

“…3 We used data from the National Institute for Social Security (INPS), identifying all new firms -with at least one employee -founded in January 1987 and tracking them at monthly intervals until January 1993. Accordingly, industry-specific characteristics, such as scale economies and the endowment of innovative capabilities (see Audretsch, 1991 andAgarwal andAudretsch 2001), exert a significant impact on entry, exit, and the likelihood of survival of newborn firms. For example, in industries characterized by higher minimum efficient scale (MES) levels of output, smaller firms face higher costs that are likely to push them out of the market within a short period after start-up (see Lotti and Santarelli, 2004).…”

“…In their model, a firm knows its own characteristics and those of its competitors, along with the future distribution of industry structure, conditional on the current structure. From an empirical perspective, a recent stream of literature has focused on the post-entry performance of firms and has investigated survival, growth and early exit of newborn firms (see, for instance, Reid, 1991;Boeri and Cramer, 1992;Baldwin and Rafiquzzaman, 1995).Within this field, it is possible to analyse the relationship between ex-ante features of entry, survival and, in the case of survival, post-entry performance of newborn firms, which can be measured in terms of employment growth, profitability or market penetration.For instance, some of these studies have discovered a positive relationship between startup size and survival (see Audretsch and Mahmood, 1995;Mata, Portugal and Guimaraes, 1995; for more controversial results, see Audretsch, Santarelli and Vivarelli, 1999a;and Agarval and Audretsch, 2001). Others have found a negative relationship between start-up size and post-entry growth, thus rejecting Gibrat's Law (see Gibrat, 1931;Hall, 1987;Evans, 1987;Dunne and Hughes, 1994;Hart and Oulton, 1996;Sutton, 1997;Vivarelli, 2001 and.…”

“…For instance, some of these studies have discovered a positive relationship between startup size and survival (see Audretsch and Mahmood, 1995;Mata, Portugal and Guimaraes, 1995; for more controversial results, see Audretsch, Santarelli and Vivarelli, 1999a;and Agarval and Audretsch, 2001). Others have found a negative relationship between start-up size and post-entry growth, thus rejecting Gibrat's Law (see Gibrat, 1931;Hall, 1987;Evans, 1987;Dunne and Hughes, 1994;Hart and Oulton, 1996;Sutton, 1997;Vivarelli, 2001 and.…”

A New Approach to Estimating Product Lifetimes: A Case Study of an LED Based LCD TV

“…As the industry evolves towards maturity and decline stages, the product design becomes more standardized and uniform, and the premium attached to technological superiority recedes (Agarwal and Audretsch, 2000). Diminishing technological differentiation in this transition leads to participating in price wars and the firms which can produce most cost effectively and efficiently rather than most sophisticatedly can be successfully maintained.…”