Growth and survival: The moderating effects of local agglomeration and local market structure

Abstract

One of the central explanations of the high failure rates of de novo entrants is the liability of smallness. As a corollary, most prior literature has suggested that firms should experience survival benefits from growth. In this paper, we argue that survival benefits need to be balanced against the potential cost of rapid growth, and they are contingent upon the structure of the environment. We predict a curvilinear relationship between an entrant's growth rate and failure, and argue that the relationship is contingent upon the local agglomeration of economic activity and the local structure of competition. We test and find support for our predictions using firm-level longitudinal data of all de novo entrants into the Canadian manufacturing sector between 1984 and 1998. A. Pe'er, I. Vertinsky, and T. Keil products are highly perishable and in which transportation costs dominate (e.g., food and related products, meat packing, newspapers, milk and cream, and concrete products). The results suggest that the effect of local market concentration on survival is much stronger for those sectors. Additional supporting information may be found in the online version of this article:Appendix S1. Determining the boundaries of agglomeration and local market concentration. Appendix S2. Accounting for potential endogeneity. Appendix S3. Microfoundations of agglomeration.

Entrepreneurship and the determinants of firm survival within regions: human capital, growth motivation and locational conditions

“…This means that the scale of proximate markets may influence survival. The urban-incubator hypothesis suggests that larger urban areas will provide an environment more conducive for start-up activity from increased information circulation with customers and suppliers (Vernon 1960;Renski 2008;Lejpras and Stephan 2011;Pe'er, Vertinsky, and Keil 2016). This is particularly important for innovative and rapidly changing sectors (Malecki 1990;Agarwal 1996Agarwal , 1998Agarwal and Audretsch 1999;Renski 2011).…”

“…The most prominent underlying influences concern the human capital of entrepreneurs (Gimmon and Levie 2010;Rauch and Rijsdijk 2013), the growth motivation of entrepreneurs in terms of the development of their firms (North, Leigh, and Smallbone 1992), as well as external environmental factors relating to the spatial location of the firms and the industrial structure within which firms operate (Renski 2011;Stephan 2011;Pe'er, Vertinsky, and Keil 2016).…”

New firm survival: the interdependence between regional externalities and innovativeness

“…Interaction effects have e.g. been found for endowment with assets and human capital (PE'ER & KEIL, 2013), internationalization activities (PUIG et al, 2014) or company growth patterns (PE'ER et al, 2014).…”

“…Instead, the impact of externalities on start-ups is moderated by certain company characteristics. So far, only few company attributes and only certain types of regional externalities, have been accounted for (PE'Er et al, 2014;PUIG et al, 2014). We provide a first study that analyses the moderating role of the innovation behavior of start-ups on their benefiting from regional localization as well as Jacobs externalities.…”

Consecuencias económicas en el Producto Interno Bruto del decrecimiento poblacional en los países que atraviesan la fase final de su transición demográfica

“…Si bien un gran mercado interno es obviamente una ventaja, como lo demuestra los Estados Unidos (Pe'er, Vertinsky & Keil, 2016). Una ventaja equivalente también puede surgir de la adopción de la membresía en un bloque comercial como el mercado único europeo (Borner & Grubel, 2016), pudiendo incluso las exportaciones compensar la contracción de los mercados nacionales.…”