growth paths and survival chances an application of gambler s ruin theory this paper links new firm survival with growth with a focus on the patterns in firms growth paths we theorise a gambler s ruin framework by arguing that new firm performance is best modelled as a random walk process but that survival is nonrandom and depends primarily on the stock of accumulated resources a firm s resources are either there when the business begins or are generated by successful periods wins the empirical section tracks over six years the sales and survival non survival of 6247 uk start ups which all began trading in the same quarter of 2004 we do not find strong evidence in favour of a taxonomy of growth paths because we observe that every possible growth path seems to occur with roughly equal probability however we observe that growth paths influence subsequent survival controlling for lagged size we observe that longer lags of growth and even start up size have significant effects on survival

forecasting and trading monetary policy effects on the riskless yield curve with regime switching nelson siegel models abstract we use 1982 2014 data on the us riskless yield curve to show that regime switching dynamics in nelson siegel factor models extended to encompass variables that summarize the state of monetary policy lead to superior predictive accuracy such spread in forecasting power turns out to be statistically significant even controlling for parameter uncertainty and sample variation exploiting regimes we obtain evidence that the increase in predictive accuracy is stronger during the great financial crisis when monetary policy underwent a significant sudden shift although more caution applies in comparisons to a naive random walk benchmark over a few sub samples and when transaction costs are accounted for we report that the increase in predictive power owed to the combination of regimes and of variables that capture the stance of unconventional monetary policies is tradeable we devise and test butterfly strategies that exploit the forecasts from the models and obtain evidence of risk adjusted profits both per se and in comparisons to simpler models

entry growth and survival of manufacturing firms this paper examines the interactions between entry size growth rate and probability of survival of firm standard microeconomics states that firm growth stems from relative efficiency differentials and that growth positively affects the likelihood of survival therefore the selection hypothesis is unable to explain how a wide number of small newly born firms can survive at length even without growth and how an even larger set of firms with a higher than average growth rate exits the market in the first few years after the foundation it is shown that one way out of these apparent paradoxes is to relax the hypothesis of a one to one link between initial relative efficiency and survival and then develop a model based on different entry modes and growth patterns of the newly born firms

entrepreneurship and organization design we model entrepreneurship and the emergence of firms as an outcome of simultaneous bidding for labor services among heterogeneous agents what distinguishes our approach from prior work is that occupational choice and job matching are determined simultaneously so that the opportunity costs of entrepreneurs are accounted for those who are relatively unmanageable while possibly excellent managers themselves become entrepreneurs entrepreneurs compete and create value by building efficient organizations and offering potentially well paid jobs to others while the entry of an additional entrepreneur typically reduces some individual wages we show that it always raises the average wage and depresses the average income of incumbent entrepreneurs this result may help explain the empirically low returns to entrepreneurship

the role of no arbitrage on forecasting lessons from a parametric term structure model abstract parametric term structure models have been successfully applied to numerous problems in fixed income markets including pricing hedging managing risk as well as to the study of monetary policy implications in turn dynamic term structure models equipped with stronger economic structure have been mainly adopted to price derivatives and explain empirical stylized facts in this paper we combine flavors of those two classes of models to test whether no arbitrage affects forecasting we construct cross sectional allowing arbitrages and arbitrage free versions of a parametric polynomial model to analyze how well they predict out of sample interest rates based on us treasury yield data we find that no arbitrage restrictions significantly improve forecasts arbitrage free versions achieve overall smaller biases and root mean square errors for most maturities and forecasting horizons furthermore a decomposition of forecasts into forward rates and holding return premia indicates that the superior performance of no arbitrage versions is due to a better identification of bond risk premium

an intertemporal model of industrial exit a finite horizon model of industrial exit is developed after an initial lag most exits are by young firms the duration of the lag is positively related to sunk entry costs but not due to the fallacy of sunk costs the conception of entry differs from previous research as a result not all entrants are identical and firm size affects the rate of learning on average larger new firms last longer entrepreneurs in declining firms act more lazily as the firm declines a number of empirical observations about declining firms are organized by the model

duration of firms in an infant industry the case of indian computer hardware abstract this study analyses survival of firms in an infant industry in a developing economy it is found that a entry size and the probability of exit are positively related which is the opposite of the result in most previous studies b similar to previous studies post entry size is negatively related to the hazard c firms with longer duration have a more volatile time path of size d the hazard declines with age at an increasing rate suggesting increasing returns to learning and e diversification of firms and public ownership have little effect on duration

bridging behavioral and economic theories of decline organizational inertia strategic competition and chronic failure this paper is another plea for bridging behavioral and economic approaches to the study of competition in markets and strategy making by firms the arguments focus on a specific case in point the behavioral theory of organizational decline and the economic modeling of immediate exit the arguments come in three steps first the literature on organizational decline is reviewed by organizing a framework that summarizes arguments from varying economic and organizational perspectives that have for the most part developed independently observations from empirical and theoretical studies are combined in order to investigate the causes conditions courses and consequences of organizational downturn second a theoretical argument is developed that explains voluntary exit and chronic failure by introducing a proxy of organizational inertia in a model of strategic cournot duopoly the key assumptions which have a behavioral flavour that seemingly contradicts orthodox economics are grounded in the theoretical and empirical literatures the results of the model support the claim that pure profit maximizing behavior may be at the expense of organizational survival d aveni 1990 p 135 third by formulating two hypotheses and presenting tentative evidence from the chemical industry the paper hopes to convincingly argue that such integrative models lead to empirical testing of interesting hypotheses a key finding here is that inefficient firms may outlast their efficient rivals cf d aveni 1989a

the relationship between firm growth size and age estimates for 100 manufacturing industries this study uses a sample of all firms operating in 100 manufacturing industries to examine some aspects of firm dynamics it finds that firm growth the variability of firm growth and the probability that a firm will fail decrease with firm age it also finds that firm growth decreases at a diminishing rate with firm size even after controlling for the exit of slow growing firms from the sample gibrat s law therefore fails although the severity of the failure decreases with firm size copyright 1987 by blackwell publishing ltd

staying in business abstract the paper analyses factors which help a small entrepreneurial firm to stay in business the time scale for the analysis is three years 1985 1988 the main issue that the paper is concerned with is the role of market and financial variables primary source data are used an estimated probit model indicates that for this sample product range and gearing are the key maket and financial variables respectively the greater the product range and the lower the gearing ceteris paribus the better the chances of staying in business

the changing distributions of new ph d economists and their employment implications for the future this essay addressed the changing demographic composition of new ph d s in economics and the changing distribution of the jobs that they are obtaining it discusses how future trends may interact to influence the types of training that economists may provide their graduate students and the types of faculty positions that academic institutions may provide for new ph d economists in the future

a theory of wage dynamics a dynamic equilibrium model of long term implicit labour contracts under incomplete but symmetric information is developed workers are assumed to be risk averse and of unknown ability or productivity risk neutral firms learn as do workers about each worker s productivity by observing the worker s output over time it is shown that equilibrium contracts provide for wages which never decline with age and increase only when the worker s market value increases above his current wage in addition to characterizing the equilibrium wage contract we also derive some of its implications for the behaviour of aggregate wages across various groups of workers these implications explain some findings in the recent empirical literature on ageearnings profiles in particular our model can explain why earnings may be positively related to experience even after controlling for productivity as some empirical studies have indicated

early life cycle behaviour of micro firms in scotland the paper reports on the behaviour of young less than three years old micro firms less than ten employees in scotland with an emphasis on life cycle effects two main tests were carried out the first took gibrat s law that growth is independent of size as the null hypothesis and a life cycle effects model as the alternative the gibrat s law model was rejected in favour of the life cycle model smaller micro firms grow faster than larger micro firms robust nonlinear variants of the life cycle model were discussed and shown to display stable equilibrium characteristics which were consistent with the sample evidence the second took a classical simultaneous equations model as the null hypothesis for which growth and profitability were mutually reinforcing a managerial model was set up as the alternative for which growth and profitability were in a trade off relationship the classical model was rejected in favour of the managerial in the short run young micro firms experience a trade off between profitability and growth the managerial model was shown to imply a stable equilibrium with characteristics consistent with sample evidence

job matching with finite horizon and risk aversion the consequences of introducing risk averse workers with a known finite retirement age into a simple job matching framework are explored the job matching model includes two jobs in the primary job workers and firms learn about the worker s productivity by observing his output over time in the secondary job productivity of any worker is known with certainty at the outset workers start off in the primary job but based on their observed performance may choose to switch to the secondary job the model is developed in two stages first the finite retirement age is introduced while the usual assumption of risk neutral workers is retained in this model it is shown that all workers who achieve at least a certain cumulative output record denoted r by a certain age denoted t will thereafter remain in the primary job until retirement those who do not achieve r by age t switch to the secondary job at or before age t and remain there second risk aversion is introduced along with finite retireme

matriculation in u s economics ph d programs how many accepted americans do not enroll using a sample of 26 u s economics ph d programs in fall 2003 we estimate that only about 12 percent of the u s and canadian students accepted for doctoral study did not enroll in any u s economics ph d program in fall 2003 or fall 2004 it is not possible to increase the supply of new ph d economists substantially by closing the sale on accepted applicants additional qualified applicants are needed nonmatriculants are remarkably similar to enrollees in demographics prior education test scores and fields of special interest but express less interest in economic research and are less likely to have been offered financial aid an expected financial aid deficiency was also the most cited reason for deciding not to matriculate followed by how long it takes to earn an economics ph d and the expectation of higher lifetime earnings in a career other than economics most who decided against an economics ph d enrolled in an alternative graduate program this abstract was borrowed from another version of this item

complex actions and simple outcomes how new entrepreneurs stay in business in this paper the entrepreneur within the new small firm is regarded as taking complex rather than simple actions which determine whether he or she will remain in business thus instead of simply choosing output as in the standard analysis of the competitive firm the entrepreneur may take actions which involve choices about markets finance organisation innovation and much else besides to explore this approach very detailed information on actions within small firms is required it is shown how this was obtained by a fieldwork study of new business starts using data from this fieldwork a rich statistical picture was created of actions within the new small firm in turn this permitted econometric analysis of actions that help a new small firm to stay in business over a three year period this indicates that the crucial actions which enable a small firm to stay in business are the rapid repayment of debt and the willingness to sacrifice short run profit for growth there is also evidence that staying in business is fostered by tight control of the wage bill especially by substituting other labour inputs for full time employees

comment the state of british economics i read the three articles in this symposium with great interest having been quite involved in at least some of these topics as an economist on the other side of the atlantic i will both comment on how the world is similar or different in us academic economics and will also feel freer than did the authors to speculate on underlying causal factors behind the data having chaired the american economic association s committee on the status of women in the economics profession cswep for three years i first read booth and burton s article i was struck by how similar the numbers appeared in the united kingdom and the united states table 1 presents the results reported from cswep s annual departmental questionnaire which is sent to all phd granting institutions in the united states as the table shows women constitute about 6 of full professors 15 of tenured associate professors and 28 of untenured assistant professors even recognising differences in the definition of academic positions between the united states and the united kingdom these numbers are remarkably similar to those shown in table 1 of booth and burton for full time staff furthermore as in the united kingdom the proportion of women is somewhat lower in the topranked departments in recent years between 25 and 34 of those receiving phds in economics have been female in the united states also similar to the uk numbers in table 4 of booth and burton in the united states the share of women in academic positions decreases at every level in economics the share of female assistant professors is lower than the share of women graduating with a phd the share of women promoted to associate professor is lower than their share among assistant professors and the share of female full professors is lower than among associates while this is partly due to the pipeline problem in which a disproportionate share of female phds are younger it is not entirely due to this i recently tried to model the expected flow of women up through the academic ranks from 1980 forward given information in each year on the share of women receiving a phd and assuming that women should enter academic work and move upward at the same rate as men my evidence showed that women are not advancing as rapidly as men and that the smaller shares in associate and full professor tenured jobs is not just a pipeline issue but also due to women dropping out of academic economics at a higher rates at each point of course the key question is why do women drop out of or fail to be promoted in academic economics at a higher rate at least three issues are frequently raised first women disproportionately choose to specialise in more applied fields in economics not only is this work less valued in academic

learning about the unknown how fast do entrepreneurs adjust their beliefs this paper seeks to measure the extent to which entrepreneurs adjust their beliefs in the light of new information instead of relying on past experience to guide their decision making we build a model in which entrepreneurs continually receive valuable but noisy market signals about the true but unobserved productivity of their effort and use this information to update their expectations of unobserved productivity the model is estimated using a sample of over 700 self employed britons interviewed in 1999 and 2000 it is found that on average these individuals adjust their expectations of unobserved productivity in the light of new information by only 16 this suggests that while entrepreneurs do exploit new information they give much greater weight to their prior beliefs when forming their expectations also there are no significant differences in terms of expectation formation between males and females employers and non employers and experienced and less experienced entrepreneurs however younger entrepreneurs respond significantly more sensitively to new information than older entrepreneurs do with adjustment rates of 21 compared with 14 respectively we go on to discuss some policy implications of these findings and briefly discuss several features of entrepreneurship education programs that might help entrepreneurs improve this aspect of their business performance

new firm survival new results using a hazard function a limitation of audretsch s 1991 study of new firm survival was the level of aggregation to industries this precluded linking establishment specific characteristics such as organizational structure and size to post entry performance the purpose of this paper is to relate the post entry performance of individual establishments not only to their technological and market structure environments but also to establishment specific characteristics we do this by estimating a hazard duration function for more than 12 000 individual establishments in u s manufacturing started in 1976 by tracking their subsequent performance over a ten year period we conclude that establishment specific characteristics which audretsch was not able to capture in his earlier study play an important role in shaping the exposure to risk confronting new establishments copyright 1995 by mit press

modeling the timing of business firm exits the previous theoretical studies of the timing of business exits have employed two different approaches they have either developed sequential decision making models or models based on gambler s ruin the purpose of this paper is to evaluate both approaches for this task some simple models of the exit process are developed and it is shown that both types of models are capable of generating the observed patterns of firm mortality the reasonableness of the assumptions and the importance of key variables in the two models are tested using a case study of restaurant exits we find that the sequential decision making model would have to be rather complex to serve as a realistic descriptive model of the exit process gambler s ruin models on the other hand provide a realistic descriptive model not only of the environment in which a large portion of this industry operates but of the decision process as well models based on gambler s ruin may therefore provide a potentially useful approach for modeling exit process in other industries dominated by small firms

pre entrepreneurial income cash flow growth and survival of startup businesses model and tests on u k data a target income human capital model of startup survival and growth is derived and tested the objective of the entrepreneur is to produce an independent source of income for him herself to replace income from previous employment target income is a function of pre entrepreneurial income and human capital represented by age the model predicts that higher pre income entrepreneurs and more mature individuals will grow faster to achieve these targets and that growth is an ambiguous function of size it also predicts that these same individuals and businesses that start larger will be more likely to survive the key results of the empirical analysis are that a businesses run by proprietors with higher pre entrepreneurial incomes do indeed grow faster than other startups but have no greater survival prospects and b businesses run by mature proprietors possess greater longevity we conclude that business income targets in practice constitute a significant motivation for startup growth and that the human capital represented by age plays no additional role however proprietor age rather than pre income determines survival despite the fact that pre income and age are positively correlated both with each other and with growth

why do most firms die young a model is developed to explain why most firms die in the first few years of trading a risk averse entrepreneur with initial capital endowment faces a brownian motion in net worth over time to balance return profits growth and risk variance of profits she adopts a portfolio strategy choosing market positioning to achieve an optimal combination of risk and return at each instant given her financial and human capital endowments and attitude towards risk failure occurs when the firm s value falls below the opportunity cost of staying in business the resulting distribution of failure is inverse gaussian implying for specific parameter values a positively skewed failure curve of the type observed in practice in addition the model presents a novel measure of management human capital mhc which implies that high mhc entrepreneurs will have higher absolute and marginal profits growth than low mhc entrepreneurs at given levels of risk

the survival and growth of new establishments in sweden 1987 1995 the aim of the study is to examine the survival of new establishments and to identify factors affecting their survival probability and their employment growth this study uses a unique data set on all new establishments that were created in sweden 1987 and 1988 with the exception of the construction industry the results show among others that i new establishments face a high risk of closing down ii the probability of establishment survival increases with the age and size of the establishment iii variables that are assumed to measure access to resources being a part of a multi unit firm and being new due to merger or dispersal have a positive effect on survival iv the number of employees at the start up year has a negative effect on the employment growth and v demographic and educational factors are important in explaining survival and growth

monetary policy in a data rich environment abstract most empirical analyses of monetary policy have been confined to frameworks in which the federal reserve is implicitly assumed to exploit only a limited amount of information despite the fact that the fed actively monitors literally thousands of economic time series this article explores the feasibility of incorporating richer information sets into the analysis both positive and normative of fed policymaking we employ a factor model approach developed by stock j h watson m w diffusion indices journal of business economic statistics 2002 20 2 147 forecasting inflation 1999 journal of monetary economics 44 2 293 that permits the systematic information in large data sets to be summarized by relatively few estimated factors with this framework we reconfirm stock and watson s result that the use of large data sets can improve forecast accuracy and we show that this result does not seem to depend on the use of finally revised as opposed to real time data we estimate policy reaction functions for the fed that take into account its data rich environment and provide a test of the hypothesis that fed actions are explained solely by its forecasts of inflation and real activity finally we explore the possibility of developing an expert system that could aggregate diverse information and provide benchmark policy settings

a dynamic nelson siegel model with forward looking macroeconomic factors for the yield curve in the us abstract this paper employs a factor augmented dynamic nelson siegel fadns model to predict the yield curve in the us that relies on a large data set of mostly forward looking macroeconomic variables fadns models significantly improve interest rate forecasts relative to many extant models in the literature for longer horizons it outperforms autoregressive alternatives with reductions in mean absolute forecast error of up to 18 using quarterly data and of up to 40 at higher frequencies for shorter horizons it is still competitive against autoregressive forecasts outclassing them for 7 and 10 year yields the out of sample analysis reveals that the forward looking nature of the indicators we employ is crucial for improving forecasting performance including them indeed reduces the mean absolute error with respect to specifications based on backward looking macroeconomic indicators for any model we consider

what makes a new business start up successful this paper seeks a good measure of new business performance and then explains this measure by various dimensions of business strategy three criteria are used to create a one dimensional ordinal ranking of high medium and low performance for new business starts employment growth return on capital employed and labour productivity it is shown that statistical cluster analysis provides a convincing separation of a sample of new business starts into high medium and low performance categories using a minimum distance criterion for clustering an ordinal logit model with selection is then used to explain this performance ranking the results indicate that many widely discussed features of small business strategy have little or even negative impact on performance of the numerous aims that owner managers may adopt survival growth etc only one appears to have a major impact on performance the pursuit of the highest rate of return on investment many entrepreneurial perceptions of their own capabilities appear false or unimportant with the exception of organisational features and systems

is subsidizing entry an optimal policy public subsidies in support of new firm foundation are among the most frequently used instruments of industrial policy in the euro zone this paper analyses their effectiveness and efficiency vis a vis some features of the overall process of industry dynamics in italian manufacturing to this end the survival and growth patterns of new small firms are investigated using a unique dataset on electrical and electronic engineering in italy as regards survival our results confirm the findings of other studies namely that the hazard rates are particularly high in the early stages of firm s life cycle as far as growth is concerned the study s main finding is that gibrat s law fails to hold in the years immediately following start up when smaller firms must rush in order to achieve a size large enough to enhance their likelihood of survival conversely in later stages of firm s life cycle the law cannot be rejected these results radically question the use of subsidies as an optimal policy for the support of new entries since the subsidy brings about a major bias in the process of market selection including substitution and deadweight effects and hampers the post entry scale adjustment of newborn firms

an information based model of industrial exit abstract this paper develops an information based approach to firm closures it is argued that non bankrupt exit firms will be older than firms forced out by creditors support for this and other hypotheses comes from u k survey data

the yield curve and the macro economy across time and frequencies this paper assesses the relation between the yield curve and the main macroeconomic variables in the u s between early 1960s and 2009 across time and frequencies using wavelet analyses the shape of the yield curve is modelled by latent factors corresponding to its level slope and curvature estimated by maximum likelihood with the kalman filter the macroeconomic variables measure economic activity unemployment inflation and the fed funds rate the cross wavelet tools employed coherency and phase difference the set of variables and the length of the sample allow for a thorough appraisal of the timevariation and structural breaks in the direction intensity synchronization and periodicity of the relation between the yield curve and the macro economy our evidence establishes a number of new stylized facts on the yield curve macro relation and sheds light on several results found in the literature which could not have been achieved with analyses conducted strictly in the time domain as most of the literature or purely in the frequency domain

the determinants of exit in an open economy in this paper the determinants of exit are investigated for the manufacturing sector of the united states economy which has been subjected to growing international influences the analysis uses united states cross sectional data the results of the exit equation suggest that low profitability declining industry growth and displacement of incumbents by entrants foster exit international influences are also seen to have an impact on u s manufacturing exit specifically imports into an industry have a small effect on exit and protection has little influence in stemming exit

macroeconomic forecasting using diffusion indexes this article studies forecasting a macroeconomic time series variable using a large number of predictors the predictors are summarized using a small number of indexes constructed by principal component analysis an approximate dynamic factor model serves as the statistical framework for the estimation of the indexes and construction of the forecasts the method is used to construct 6 12 and 24 monthahead forecasts for eight monthly u s macroeconomic time series using 215 predictors in simulated real time from 1970 through 1998 during this sample period these new forecasts outperformed univariate autoregressions small vector autoregressions and leading indicator models

the probability of bankruptcy a comparison of empirical predictions and theoretical models abstract the last decade has witnessed the development of many empirical models to predict corporate bankruptcy and of several bankruptcy theories this paper reviews and integrates these two strands of research and finds a substantial amount of overlap however the overlap is not perfect the paper presents a new theory of bankruptcy that appears to fit the data better the paper also suggests directions for future empirical and theoretical research