Firm survival and exit in response to trade liberalization

Abstract

This paper considers the implications of changing trade barriers for the survival of Canadian manufacturing firms. The findings suggest that Canadian tariff reductions decreased the probability of survival for Canadian firms while declines in American tariffs increased that probability. Combining these effects, two-thirds of Canadian manufacturing firms saw their probability of survival increase as a result of the tariff reductions mandated by the Canada-US Free Trade Agreement. However, the vulnerability of a firm to failure as a result of trade liberalization was mitigated by the characteristics of that firm, particularly scale and leverage. JEL classification: F1, L1Survie des entreprises et disparition en re´action a`la libe´ralisation du commerce. Ce me´moire examine les impacts de changements dans les barrie`res tarifaires sur la survie des entreprises manufacturie`res canadiennes. Les re´sultats sugge`rent que la re´duction des droits de douane canadiens re´duit la probabilite´de survie des entreprises canadiennes alors qu'une re´duction des droits de douane ame´ricains a l'effet contraire. La combinaison de ces deux effets engendre´s par les re´ductions tarifaires simultane´es commande´es par l'Accord de libre e´change Canada-USA a fait que les 2/3 des entreprises manufacturie`res canadiennes ont vu leur probabilite´de survie s'accroıˆtre. Cependant la vulne´rabilite´de l'entreprise a`la faillite a`cause de la libe´ralisation du commerce est diffe´rente selon les caracte´ristiques de l'entreprise, et en particulier sa taille et sa capitalisation.

The predictability of financial, accounting‐based, and industrial factors on the success of newly incorporated Spanish firms

“…Though the result of the negative impact is contrary to the theoretical assumption and some empirical results, like of Baggs (2005), similar results can still be found frompast research, for example the research of Audretsch et al (2000) where the negative effect of industry growth is kept till age 8. So the statement of Audretsch et al (2000) that uncertainty is entwined with industry's high growth could be employed to explain the negative effect; however, this effect seems to be maintained at early ages, because positive effect emerges later.…”

“…For example, Nunes and Serrasqueiro (2012) find that debt is positively related to survival for both young and old SMEs (small and medium-sized enterprises), particularly the young. By contrast, negative relationship between leverage and survival is supported by Baggs (2005). Robb and Robinson (2014) point out the most important three financing sources of start-ups: bank debt, personal equity and trade credit.…”

“…Here noteworthy is that, when exploring the predictability of age 2 or age 3, it means that the firms survive at least till that age. (2012); industrial variables from the research of Geroski et al (2010), López-García and Puente (2006), and Baggs (2005). Here size and market share are treated asaccounting-based factors in that they are calculated on the ground of the data in financial statements; and, except for corporate venturing (representing whether an incorporated firm belongs to a group; used in the study of Bridges and Guariglia (2008)), all the factors and variables could change with time.…”

“…Baggs (2005) finds that industry concentration is a negative factor to survival whereas Audretsch (1991) believes the impact of market concentration on survival would change as time goes by, being positive on short-run survival but null on long-run survival. Bogliacino and Pianta (2013) use the growth of industry sales to reflect industry demand; Sharma and Kesner (1996) also state that high industry growth means expanding demand and then new entrants would cause less threat to incumbents and suffer less retaliation from incumbents.…”

“…Bogliacino and Pianta (2013) use the growth of industry sales to reflect industry demand; Sharma and Kesner (1996) also state that high industry growth means expanding demand and then new entrants would cause less threat to incumbents and suffer less retaliation from incumbents. The empirical study of Baggs (2005) shows that industry growth works as a positive factor to survival. Burke and Hanley (2009) …”