nep-bec New Economics Papers
on Business Economics
Issue of 2010‒12‒11
27 papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Entry Threats, and Inefficiency in ‘Efficient Bargaining’ By Rupayan Pal; Bibhas Saha
  2. CEO Compensation By Carola Frydman; Dirk Jenter
  3. Theories of Heterogeneous Firms and Trade By Stephen J. Redding
  4. Processing Trade, Firm's Productivity, and Tariff Reductions: Evidence from Chinese Products By Miaojie Yu
  5. Heterogeneous Exits: Evidence from New Firms By Kato, Masatoshi; Honjo, Yuji
  6. Public Options and Altruistic Firms - Antitrust Targets or Tools? The Welfare Impact of a Mixed Oligopoly With Managerial firms By Johan Willner
  7. The Role of Directors’ Professional and Social Networks in CEO Compensation and the Managerial Labour Market. By Zhao, Y.
  8. Shared Ownership versus Third-Party Ownership By Stephan Nüesch; Egon Franck
  9. Teams of Rivals: Endogenous Markups in a Ricardian World By Beatriz de Blas; Katheryn Russ
  10. Income Uncertainty and Household Savings in China By Marcos Chamon; Kai Liu; Eswar S. Prasad
  11. Corporate Governance, Human Capital Investment, and Job Termination Clauses - a Lesson from the Literature on Hold-Up By Barbara Schöndube-Pirchegger
  12. The Wage-Productivity Gap Revisited: Is the Labour Share Neutral to Employment? By Marika Karanassou; Hector Sala Lorda
  13. Firm behavior, market deregulation and productivity in Spain By César Alonso-Borrego
  14. Negative and Positive Effects of Competition in a Preemption Game By Toru Suzuki
  15. Capital Regulation after the Crisis: Business as Usual? By Hellwig, Martin
  16. International Risk Sharing and the Irish Economy By Agustin Benetrix;
  17. What Drives the Demand for Temporary Agency Workers? By Jahn, Elke J.; Bentzen, Jan
  18. A country-risk approach to the business cycle. With an application to Argentina By Jorge Avila
  19. When is Gibrat's Law a Law? By Daunfeldt, Sven-Olov; Elert, Niklas
  20. Lessons From the Latest Data on U.S. Productivity By Jan P.A.M. Jacobs; Simon van Norden
  21. Two-Tier Labor Markets in the Great Recession: France vs. Spain By Bentolila, Samuel; Cahuc, Pierre; Dolado, Juan José; Le Barbanchon, Thomas
  22. A Closer Look at the World Business Cycle Synchronization By Pedro André Cerqueira
  23. Does Labor Diversity Affect Firm Productivity? By Parrotta, Pierpaolo; Pozzoli, Dario; Pytlikova, Mariola
  24. Neglected risks, financial innovation, and financial fragility By Nicola Gennaioli; Andrei Shleifer; Robert Vishny
  25. How Expectations Affect Managerial Change By Egon Franck; Stephan Nüesch; Jan Pieper
  26. La motivation des salariés et la performance dans les entreprises By Laura Mucha
  27. Business Survival in Portuguese Regions By Alcina Nunes; Elsa de Morais Sarmento

  1. By: Rupayan Pal; Bibhas Saha (Indira Gandhi Institute of Development Research)
    Abstract: We examine whether the outcome of bargaining over wage and employment between an incumbent firm and a union remains efficient under entry threat. The workers\' reservation wage is not known to the entrant, and entry is profitable only against the high reservation wage. The entrant observes the pre-entry price, but not necessarily the wage agreements. When wage is not observed, contracts feature over-employment. Under separating equilibrium the low type is over-employed, and under pooling equilibrium the high type is over-employed. But when wage is observed, pooling equilibrium may not always exist, and separating equilibrium does not involve any inefficiency.
    Keywords: Efficient Bargaining, Entry Threat, Signalling, Inefficiency
    JEL: J51 L12 D43 J58
    Date: 2010
  2. By: Carola Frydman; Dirk Jenter
    Abstract: This paper surveys the recent literature on CEO compensation. The rapid rise in CEO pay over the past 30 years has sparked an intense debate about the nature of the pay-setting process. Many view the high level of CEO compensation as the result of powerful managers setting their own pay. Others interpret high pay as the result of optimal contracting in a competitive market for managerial talent. We describe and discuss the empirical evidence on the evolution of CEO pay and on the relationship between pay and firm performance since the 1930s. Our review suggests that both managerial power and competitive market forces are important determinants of CEO pay, but that neither approach is fully consistent with the available evidence. We briefly discuss promising directions for future research.
    JEL: G30 J31 J33 M52
    Date: 2010–12
  3. By: Stephen J. Redding
    Abstract: This paper reviews the recent theoretical literature on heterogeneous firms and trade, which emphasizes firm selection into international markets and reallocations of resources across firms. We discuss the empirical challenges that motivated this research and its relationship to traditional trade theories. We examine the implications of firm heterogeneity for comparative advantage, market size, aggregate trade, the welfare gains from trade, and the relationship between trade and income distribution. While a number of studies examine the endogenous response of firm productivity to trade liberalization, modeling internal firm organization and the origins of firm heterogeneity remain interesting areas of ongoing research.
    JEL: F1 L80
    Date: 2010–12
  4. By: Miaojie Yu (China Center for Economic Research)
    Abstract: This paper explores how processing trade, jointly with tariff reduction, can improve a firm's productivity. Tariff reductions generate productivity gain via competition, whereas processing export does so via spillovers. Using mostly disaggregated Chinese product-level trade data and firm-level production data from 2000--2006, after constructing firm-level tariffs based on product information and controlling for possible endogeneity, I found that a 10% tariff decrease generates a 12% increase in a firm's productivity gain. In addition, processing firms enjoy significant productivity gains via spillovers, with heterogeneity across firms divided according to ownership. These findings are robust to various econometric methods, disaggregated specifications, and measures.
    Keywords: Processing Trade, Productivity, Firm's Heterogeneity, Chinese Plants
    JEL: F1 L1 O1 O2
    Date: 2010
  5. By: Kato, Masatoshi; Honjo, Yuji
    Abstract: This paper explores heterogeneous exits-bankruptcy, voluntary liquidation, and merger-by focusing on new firms. Using a sample of approximately 16,000 firms founded in Japan during 1997-2004, we examine the determinants of new-firm exit according to forms of exit. Regarding industry-specific characteristics, our findings indicate that new firms in capital-intensive and R&D-intensive industries are less likely to go bankrupt. In industries characterized by large amounts of capital and low price-cost margins, new firms are more likely to exit through voluntary liquidation and merger. Region-specific characteristics, such as regional agglomeration and unemployment rate, have significant effects on the hazards of exit, and their effects vary across different forms of exit. Moreover, we provide evidence that firm-specific characteristics, such as the number of employees, and entrepreneur-specific characteristics, such as educational background and age, play significantly different roles in determining each form of exit.
    Keywords: New firm, exit, bankruptcy, voluntary liquidation, merger, competing risks proportional hazards model
    Date: 2010–10
  6. By: Johan Willner
    Abstract: I analyse the welfare impact of a mixed market with a public or private firm with some degree of altruism, in the presence of an agency problem. Contrary to some earlier findings, the total surplus turns out to be increasing in the degree of altruism. This impact is stronger than if there is no agency problem, despite more stringent conditions for the market to remain mixed. The altruistic firm is more cost-efficient, and viable if the market can remain mixed. A competition policy that encourages entry may increase welfare, but its scope is reduced by higher altruism.
    Keywords: non-profit maximising firms, public firms, mixed oligopoly, competition policy
    JEL: L32 L33 L44 H42
    Date: 2010–09
  7. By: Zhao, Y. (Tilburg University)
    Date: 2010
  8. By: Stephan Nüesch (Institute for Strategy and Business Economics, University of Zurich); Egon Franck (Institute for Strategy and Business Economics, University of Zurich)
    Abstract: Competitive advantage is based on a unique nexus of firm-specific investments that creates inimitable quasi-rents. Because of the impossibility of writing complete contracts, the distribution of the quasi-rents is vulnerable to opportunistic and inefficient behavior. This paper discusses two corporate governance models as institutional safeguards: shared ownership that assigns the rights of residual control to the firm-specific investors, and thirdparty ownership that assigns the rights of residual control to independent fiduciaries. Shared ownership entails higher costs of collective decision-making but lower agency costs than third-party ownership. The paper presents testable propositions, conditional on contextual factors, on which model is better able to incentivize firm-specific investments.
    Keywords: Corporate Governance, Firm-Specific Investments, Residual Rights of Control, Third-Party Ownership
    Date: 2010
  9. By: Beatriz de Blas; Katheryn Russ
    Abstract: We show that an ostensibly disparate set of stylized facts regarding firm pricing behavior can arise in a Ricardian model with Bertrand competition. Generalizing the Bernard, Eaton, Jenson, and Kortum (2003) model allows firms' markups over marginal cost to fall under trade liberalization, but increase with FDI, matching empirical studies in international trade, generate the existence of pricing-to-market and imperfect pass-through, and capture stylized facts regarding the frequency and synchronization of price adjustment across markets. The result is a well specified distribution for markups that previously could only be seen numerically and a way to quantify endogenous pricing rigidities emerging from a market structure governed by fierce competition among rivals.
    JEL: F0 F1 F4
    Date: 2010–12
  10. By: Marcos Chamon; Kai Liu; Eswar S. Prasad
    Abstract: China’s household saving rate has increased markedly since the mid-1990s and the age-savings profile has become U-shaped during the 2000s. We find that rising income uncertainty and pension reforms help explain both of these phenomena. Using a panel of Chinese households covering the period 1989-2006, we document that strong average income growth has been accompanied by a substantial increase in income uncertainty. Interestingly, the permanent variance of household income remains stable while it is the transitory variance that rises sharply. A calibration of a buffer-stock savings model indicates that rising savings rates among younger households are consistent with rising income uncertainty and higher saving rates among older households are consistent with a decline in the pension replacement ratio for those retiring after 1997. We conclude that rising income uncertainty and pension reforms can account for over half of the increase in the urban household savings rate in China since the mid-1990s as well as the U-shaped age-saving profile.
    JEL: D91 E21 J3
    Date: 2010–12
  11. By: Barbara Schöndube-Pirchegger (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: This paper examines a principal-agent problem between a manager (principal) and an employee (agent). At the contracting date uncertainty with regard to the profitability of the relationship is present. Once the contract is signed, the employee performs a specific investment that reduces his disutility from working hard. After that, but before the employee performs his effort, the uncertainty is resolved. The manager and the employee are free to renegotiate the contract at this point. Moreover, we distinguish three settings with respect to the principal's and the agent's options to terminate the relationship irrespective of possible renegotiation. If both parties are free to quit we find that an underinvestment problem with regard to the employee's personal investment is present. If none of the parties are allowed to breach the contract, an overinvestment problem arises. Finally, allowing the employee to quit but not the manager allows achieving first best investment.
    Date: 2010–11
  12. By: Marika Karanassou (School of Economics and Finance, Queen Mary, University of London); Hector Sala Lorda (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona)
    Abstract: This paper challenges the prevailing view of the neutrality of the labour income share to labour demand, and investigates its impact on the evolution of employment. Whilst maintaining the assumption of a unitary long-run elasticity of wages with respect to productivity, we demonstrate that productivity growth affects the labour share in the long run due to frictional growth (that is, the interplay of wage dynamics and productivity growth). In the light of this result, we consider a stylised labour demand equation and show that the labour share is a driving force of employment. We substantiate our analytical exposition by providing empirical models of wage setting and employment equations for France, Germany, Italy, Japan, Spain, the UK, and the US over the 1960-2008 period. Our findings show that the timevarying labour share of these countries has significantly influenced their employment trajectories across decades. This indicates that the evolution of the labour income share (or, equivalently, the wage-productivity gap) deserves the attention of policy makers.
    Keywords: Wages, productivity, labour income share, employment.
    JEL: E24 E25 O47
    Date: 2010–07
  13. By: César Alonso-Borrego (Universidad Carlos III de Madrid)
    Abstract: The aim of this paper is to analyze the evolution of productivity and how firm behavior and institutional conditions affects productivity. For that purpose, we use a longitudinal sample of Spanish manufacturing and services companies between 1983 and 2006, as well as OECD indicators on product market regulations. The productivity measurement is based on the control function approach, to overcome the endogeneity bias. Both for manufacturing and services firms, we have found that the share of temporary employment tends to reduce productivity, the effect being stronger for services firms, which make a more intensive use of this employment type. Our results also show that increases in competition lead to productivity improvements. Besides, those manufacturing firms who keep undertaking in-house production of services tend to be more productive. The lack of competition in the services sector may be preventing firms to increase specialization while outsourcing non-manufacturing activities.
    Keywords: TFP, Competition, Employment composition, Endogeneity
    JEL: L10 L11 L22 L23 C23
    Date: 2010–11
  14. By: Toru Suzuki (Max Planck Institute of Economics, Jena)
    Abstract: Agents compete to acquire a limited economic opportunity of uncertain profitability. Each agent decides how much he acquires public signals before making investment under fear of preemption. I show that equilibria have various levels of efficiency under mild competition. The eect of competition on the equilibrium strategy is dierent depending on which class of equilibrium we focus on. However, when competitive pressure is sufficiently high, there exists a unique equilibrium. Finally, I show that the eect of competition on efficiency is dierent between the common value and the private value setting. Strong competition leads to the least efficient equilibrium for the common value setting but efficiency can be improved by competition in the private value setting.
    Keywords: Competition, Preemption game, Strategic real option
    JEL: C73 D83
    Date: 2010–12–02
  15. By: Hellwig, Martin
    Abstract: The paper discusses the reform of capital regulation of banks in the wake of the financial crisis of 2007/2009. Whereas the Basel Committee on Banking Supervision seems to go for marginal changes here and there, the paper calls for a thorough overhaul, moving away from risk calibration and raising capital requirements very substantially. The argument is based on the observation that the current system of risk- calibrated capital requirements, in particular under the modelbased approach, played a key role in allowing banks to be undercapitalized prior to the crisis, with strong systemic effects for deleveraging multipliers and for the functioning of interbank markets. The argument is also based on the observation that the current system has no theoretical foundation, its objectives are ill-specified, and its effects have not been thought through, either for the individual bank or for the system as a whole. Objections to substantial increases in capital requirements rest on arguments that run counter to economic logic or are themselves evidence of moral hazard and a need for regulation.
    Date: 2010–07
  16. By: Agustin Benetrix (Institute for International Integration Studies, Trinity College Dublin); (IIIS/ECON, Trinity College Dublin)
    Abstract: This paper studies international risk sharing in Ireland focusing on the 1970-2007 period. To this end, we assess how consumption and national income have been affected by idiosyncratic output shocks. The study of the former shows that private consumption was partially insulated from output shocks and that risk sharing was invariant over time. The analysis of national income provides further evidence for international risk sharing. Here, we find that national income fluctuations were not fully affected by output shocks and that income risk sharing improved as Ireland became more integrated with the international financial system.
    Keywords: Ireland; international risk sharing.
    JEL: F36 F41
    Date: 2010–11
  17. By: Jahn, Elke J. (IAB, Nürnberg); Bentzen, Jan (Aarhus School of Business)
    Abstract: Temporary agency employment has grown steadily in most European countries over the past three decades as part of the general trend towards increased employment flexibility. Yet to this day, it remains an open question what drives the demand for temporary agency workers. The paper examines, first, whether the deregulation of temporary agency employment is responsible for the growth of the flexible staffing industry. Second, we investigate the cyclical behavior of temporary agency employment. Using monthly data for Germany covering the period 1973-2008, we show that the continuous liberalization of this sector is not responsible for the surge in temporary agency employment. Our analysis reveals, moreover, that temporary agency employment exhibits strong cyclical behavior and correlates with main economic indicators in real time. Since most European countries promoted the use of temporary agency employment in a similar way, we believe that our results may be interesting from an international perspective as well.
    Keywords: business cycle, labor law, temporary agency employment, regulation
    JEL: C41 J23 J40 J48 K31
    Date: 2010–11
  18. By: Jorge Avila
    Abstract: The paper holds that the country risk premium is the triggering factor of the business cycle in a small, financially open and highly volatile economy like that of Argentina. A rise of the premium determines a capital outflow, an aggregate demand contraction and a recession; a fall of the premium determines a capital inflow, an aggregate demand expansion and a boom. We build a model where country risk plays a central role in macroeconomic equilibrium. We evaluate the empirical relationship between country risk and GDP, consumption, investment, and the current account balance. We compare our country-risk model with those of various schools of macroeconomic thought. Main conclusions are: a) Country-risk perceptions of foreign and local investors determine the fraction of world income they like to spend in the small country and the country’s GDP adjusts passively to that fraction. b) Country risk causes a sort of labor unemployment that resembles involuntary unemployment. c) Openness softens the impact of a rise in country risk. d) Argentine time series for the period 1985-97 show a strong negative correlation between country risk and those aggregate variables, with causality going from the former to the latter.
    JEL: E32 F41
    Date: 2010–11
  19. By: Daunfeldt, Sven-Olov (The Ratio Institute); Elert, Niklas (The Ratio Institute)
    Abstract: The purpose of this paper is to investigate if the industry context matters for whether Gibrat's law is rejected or not using a dataset that consists of all limited firms in 5-digit NACE-industries in Sweden during 1998-2004. The results reject Gibrat's law on an aggregate level, since small firms grow faster than large firms. However, Gibrat's law is confirmed about as often as it is rejected when industry-specific regressions are estimated. It is also found that the industry context - e.g., minimum efficient scale, market concentration rate, and number of young firms in the industry - matters for whether Gibrat's law is rejected or not.
    Keywords: Firm growth; firm size; job creation; small firms
    JEL: L11 L25 L26
    Date: 2010–11–29
  20. By: Jan P.A.M. Jacobs; Simon van Norden
    Abstract: Productivity growth is carefully scrutinized by macroeconomists because it plays key roles in understanding private savings behaviour, the sources of macroeconomic shocks, the evolution of international competitiveness and the solvency of public pension systems, among other things. However, estimates of recent and expected productivity growth rates suffer from two potential problems: (i) recent estimates of growth trends are imprecise, and (ii) recently published data often undergo important revisions. This paper documents the statistical (un)reliability of several measures of aggregate productivity growth in the US by examining the extent to which they are revised over time. We also examine the extent to which such revisions contribute to errors in forecasts of US productivity growth. We find that data revisions typically cause appreciable changes in published estimates of productivity growth rates across a range of different productivity measures. Substantial revisions often occur years after the initial data release, which we argue contributes significantly to the overall uncertainty policymakers face. This emphasizes the need for means of reducing the uncertainty facing policymakers and policies robust to uncertainty about current economic conditions.
    JEL: C22 J24 O47
    Date: 2010–12
  21. By: Bentolila, Samuel (CEMFI, Madrid); Cahuc, Pierre (Ecole Polytechnique, Paris); Dolado, Juan José (Universidad Carlos III de Madrid); Le Barbanchon, Thomas (Ecole Polytechnique, Paris)
    Abstract: This paper analyzes the strikingly different response of unemployment to the Great Recession in France and Spain. Their labor market institutions are similar and their unemployment rates just before the crisis were both around 8%. Yet, in France, unemployment rate has increased by 2 percentage points, whereas in Spain it has shot up to 19% by the end of 2009. We assess what part of this differential is due to the larger gap between the dismissal costs of permanent and temporary contracts and the less restrictive rules regarding the use of the latter contracts in Spain. Using a calibrated search and matching model, we estimate that about 45% of the surge in Spanish unemployment could have been avoided had Spain adopted French employment protection legislation before the crisis started.
    Keywords: temporary contracts, unemployment, Great Recession
    JEL: H29 J23 J38 J41 J64
    Date: 2010–11
  22. By: Pedro André Cerqueira (GEMF/Faculdade de Economia, Universidade de Coimbra, Portugal)
    Abstract: This paper uses the period by period correlation index proposed by Cerqueira and Martins(2009) and two transformations that correct some shortcomings of this index to analyze how business cycle synchronization has changed since 1960. These indexes by distinguishing negative correlations due to episodes in single years, asynchronous behavior in turbulent times and synchronous behavior over stable periods will allow a more detailed analysis than if we used the linear correlation coefficient over time windows.
    Keywords: Globalization, Business cycle synchronization, Convergence.
    JEL: C33 E32 F42
    Date: 2010–09
  23. By: Parrotta, Pierpaolo (Department of Economics, Aarhus School of Business); Pozzoli, Dario (Department of Economics, Aarhus School of Business); Pytlikova, Mariola (Department of Economics, Aarhus School of Business)
    Abstract: Using an employer-employee dataset, we analyze how diversity in cultural background, skills and demographic characteristics affects total factor productivity (TFP) of firms in Denmark. Implementing structural estimation of firms’ production function, we find evidence that labor diversity in skills/education significantly enhances firm performance as measured by firm TFP. Conversely, diversity in demographics and ethnicity brings mixed results – both dimensions of workforce diversity have either no or negative effects on firm TFP. Hence, it seems as if the negative effects, coming from communication and integration costs connected to a more demographically and culturally diverse workforce, counteract the positive effects of diversity on firm TFP, coming from creativity and knowledge spillovers. However, we find that ethnic diversity is valuable for firms operating in industries characterized by above-average trade openness, giving support to the hypothesis that an ethnically diverse workforce provides information and access to global markets.
    Keywords: Labor diversity; skill complementarities; communication barriers; total factor productivity
    JEL: C23 J24 L20
    Date: 2010–12–01
  24. By: Nicola Gennaioli; Andrei Shleifer; Robert Vishny
    Abstract: We present a standard model of financial innovation, in which intermediaries engineer securities with cash flows that investors seek, but modify two assumptions. First, investors (and possibly intermediaries) neglect certain unlikely risks. Second, investors demand securities with safe cash flows. Financial intermediaries cater to these preferences and beliefs by engineering securities perceived to be safe but exposed to neglected risks. Because the risks are neglected, security issuance is excessive. As investors eventually recognize these risks, they fly back to safety of traditional securities and markets become fragile, even without leverage, precisely because the volume of new claims is excessive.
    Date: 2010–04
  25. By: Egon Franck (Institute for Strategy and Business Economics, University of Zurich); Stephan Nüesch (Institute for Strategy and Business Economics, University of Zurich); Jan Pieper (Institute for Strategy and Business Economics, University of Zurich)
    Abstract: This study addresses the question how performance expectations affect involuntary managerial change. As we measure performance expectations based on highly efficient bookmaker odds, our specification is less subject to manipulations than the analyst forecasts employed in prior studies. Using match-level data from the German Bundesliga, we empirically investigate to which extent deviations from rational performance expectations affect the probability of involuntary coach dismissal, even after controlling for various measures of actual team performance. We find that coaches who face higher performance expectations are more likely to be fired than peers with similar performance records but lower expectations.
    Keywords: Expectations, managerial change, aspiration level, betting odds
    Date: 2010–12
  26. By: Laura Mucha (URCA - Université de Reims Champagne-Ardenne - Université de Reims - Champagne Ardenne)
    Abstract: Aujourd'hui, les entreprises se trouvent dans une situation d'hyper concurrence, et les termes de rentabilité, profits et économies d'échelle sont devenus des préoccupations majeures. Les services ressources humaines se trouvent alors au premier plan, de par leur rôle de plus en plus stratégique dans les entreprises, d'où l'apparition de la notion de « Business Partner ». En effet, ils doivent arriver à concilier satisfaction et rentabilité dans l'entreprise. Ce sont donc de véritables acteurs de la performance de l'entreprise. Pour cela, ils doivent motiver leurs salariés afin de s'inscrire dans une logique d'efficience économique pour l'entreprise. Par conséquent, nous pouvons nous demander quelles sont les techniques de motivation adoptées par les entreprises et si la motivation des salariés représente un véritable levier de performance pour les entreprises.
    Keywords: performances, motivation, gestion des ressources humaines, ressources Humaines, management
    Date: 2010
  27. By: Alcina Nunes (Escola Superior de Tecnologia e Gestão do Instituto Politécnico de Bragança e GEMF, Faculdade Economia Universidade de Coimbra, Portugal); Elsa de Morais Sarmento (Departamento de Economia e Gestão da Universidade de Aveiro, Portugal)
    Abstract: This work addresses the post-entry performance of employer enterprises for seven regions in Portugal, at the NUT II level, by investigating the structural characteristics of survival, using non-parametric and semi-parametric methods, during the period 1985 to 2007. The last decades of the 20th century were characterized by a period of creative destruction in Portugal. In particular, regions such as Norte, Algarve and Madeira show the highest growth rates in enterprise births, deaths and firm churn. After 2000, firms´ births and deaths get relatively less turbulent. In the non-parametric analysis, we identify statistically significant disparities among regions. Norte has the lowest survival rate and Centro holds the longest surviving firms and the survival gap between the former two regions gets amplified over time. Concerning the semi-parametric analysis, firm’s current size dimension is a strong determinant for the probability of survival, particularly in the Norte and Açores. In industries characterized by high entry rates at the moment of a firm’s birth, post-entry survival becomes harder, especially in the south and in the Portuguese archipelagos, the regions with the lowest number of active employer enterprises. A higher entry rate combined with fast growth rates for any given industry also generates a shorter duration of firms. Manufacturing is the sector where more firms are more likely to abandon the market, particularly in Madeira and Norte. But it is turbulence, given by the sum of firms´ entry and exit rates that exhibits the most significant effect on survival. For every region, except for the Açores, where there is no statistical significance, those that have the highest record of firm turbulence, also display the lowest business survival probabilities. Turbulence decreases severely the survival probabilities of firms located in Madeira and Norte and to a lesser extent in the Algarve.
    Keywords: Duration Analysis, Firm dynamics, Entrepreneurship, Regional Analysis.
    JEL: C14 C41 L25 L26 R11
    Date: 2010–10

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