Survival advantage of worker buyouts over newly created worker-owned firms

Abstract

PurposeVarious theories predict that firm buyouts survive longer than newly created firms. The study aims to know whether it is the case for worker-owned firms (WOFs), i.e. firms owned and controlled mostly by their workers.Design/methodology/approachThe author conducted a comparative survival analysis of French WOFs distinguished by their entry mode (i.e. newly created, worker buyouts (WBOs) of sound conventional firms, WBOs of conventional firms in difficulty or WBOs of non-profit organizations).FindingsThe hazard of exit is 32% lower for WBOs of sound conventional firms than newly created WOFs, 18% for WBOs of conventional firms in difficulty and 64% for WBOs of non-profit organizations. The current study confirms that WBOs, even of conventional firms in difficulty, have on average a survival advantage over newly created WOFs. Surprisingly, the author also shows that this survival advantage is similar across sectors with different knowledge intensity but is lower in high capital-intensive sectors than in low capital-intensive ones.Research limitations/implicationsEndogeneity issues limit the scope of the results and should be tackled in future research. Overall, these findings show that WOFs are composed of groups with different survival likelihoods that are obscured if one only looks at the aggregate population.Practical implicationsWith caution, support agencies could foster WBOs of firms in difficulty and of non-profit organizations as viable forms of entrepreneurship.Originality/valueThe current study offers the first survival analysis distinguishing four modes of entry among WOFs.

Employee-owned firms in France

“…The financial structures of newly-created SCOPs and conventional firms also show statistically significant differences (Mirabel, 2023). On average, creating a conventional firm involves less capital than creating a worker-owned one (e.g., 53% of conventional firms require less than V16,000 to be created, as against 37% of new worker cooperatives).…”

“…Finally, the law facilitates the grouping of SCOPs by allowing one of them or employee members to hold the majority of the capital and voting rights of another worker cooperative belonging to the same group. Up to now, only two SCOP groups have been created, one of which associates SCOPs from different industries: (1) Calice is a group composed in May 2016 from (Mirabel, 2022).…”

“…Evidence from SINE shows significant differences between conventional firms and SCOPs on several entrepreneur and firm-level characteristics. Mirabel (2023) finds that entrepreneurs who create SCOPs are more likely to be French (97 vs. 92%) aged between 35 and 49 (53 vs. 48%) and are more educated (29% have less than a high-school diploma as opposed to 40% of conventional entrepreneurs, and 36% of SCOP entrepreneurs have at least two years of higher education but only 26% of conventional entrepreneurs). Entrepreneurs who create SCOPs also are more likely to have many years of experience in small firms (71% do, but only 60% of conventional entrepreneurs).…”

“…New SCOPs are more likely than conventional firms to receive public funding (75 and 37% respectively) [19] and are more often financed by bank loans (54 and 44%). They are also larger in numbers of employees than conventional firms (36% of SCOPs have more than 3 employees at creation, as against 16% of conventional firm); more often plan to hire new employees (49% of SCOPs and 34% of conventional firms); and are more often created from existing firms (28 and 13% of creations respectively involve firm takeovers-see Mirabel, 2023). This last characteristic represents a shift from the pattern observed in the 1980 and 1990s when creations by takeover or mergers of existing firms were more common among conventional firms (P erotin, 2016a).…”

“…Figures 10 and 11 present non-parametric survival curves for SCOPs and conventional firms from Mirabel (2023) first without matching (Figure 10) and after matching the firms on a number of entrepreneur and firm characteristics [20] (Figure 11). During the first five years of their lifespan, the curves confirm that SCOPs are less likely to fail than conventional firms (as we have seen above for the cohort turning five in 2022).…”