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Explaining New Firm Survival: Is the Firm, Owner, or Agglomeration at Fault?

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Abstract

This paper empirically estimates the effect of several sources of agglomeration on new firm survival while controlling for firm, entrepreneur, and regional variables using a discrete-time hazard model. We utilize the longitudinal Kauffman Firm Survey of almost 5000 US startups from 2004 to 2011. Unlike previous studies, we find that the overall hazard of entrepreneurs shutting down their new firms is not significantly affected by regional agglomeration factors, but instead firm and entrepreneur variables. However, we find suggestive evidence that location does matter for particular groups of entrepreneurs such as high-tech startups and those firms not based out of their homes.

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Notes

  1. We did estimate a cloglog specification, which is equivalent to a proportional hazard specification, and a multinomial logit model with little change in economic and statistical significance. However, the proportional hazard assumption of the cloglog model is inappropriate for entrepreneurial firm data as explained by Falck (2007) and we choose to report the logit model results.

  2. We estimated a random effects panel logit model, but accounting for the survey weights and stratification of the KFS was not possible. However, the results of the random effects model without survey adjustment are very similar, in terms of statistical and economic significance, to the estimates we report for the survey-adjusted logit.

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Authors and Affiliations

  1. Economics and Finance Department, West Chester University of Pennsylvania, 700 S. High St., West Chester, PA, 19383, USA

    Matt Saboe & Simon Condliffe

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  1. Matt Saboe
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  2. Simon Condliffe
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Correspondence to Matt Saboe.

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Disclaimer: Certain data included herein are derived from the Kauffman Firm Survey restricted-access data file. Any opinions, findings, and conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of the Ewing Marion Kauffman Foundation.

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Saboe, M., Condliffe, S. Explaining New Firm Survival: Is the Firm, Owner, or Agglomeration at Fault?. Eastern Econ J 46, 323–343 (2020). https://doi.org/10.1057/s41302-019-00162-3

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