Determinants and Interdependence of Firm Entry, Exit and Mobility

Abstract

Structural evolution of the industries involves the mechanism of market selection, which comprises entry, exit as well as market share changes, mobility, of incumbent firms. However, entry and exit studies so far have paid attention to the interdependencies only between the entry and exit. In this paper, we include the third dimension of mobility for analyses. Industrial and Regional diversification, unemployment, and unit cost deters entry, exit and mobility of incumbents. However, regional diversification deters entry only for larger firms. Unit cost does not have clear effect on incumbent mobility. Industries with smaller sized firms and with higher growth volatility experience higher entry, exit and mobility. Growth cause more entry and mobility of incumbents and fewer exits. We also test the phenomenon that entry and exit activities symmetrically, simultaneously and with delay response to each other, considering mobility. We use a longitudinal data set from Portugal covering 1986–1993 time period and 320 six-digit industries. We classify industries into growing, mature and declining parts. According to the estimation results, growing industries experience significantly more entry, exit and changes in market shares among incumbents. Although the argument that declining industries experience less entry has support, its positive significance on exit equation has some weak support. Overall, the results support that entry, exit and incumbent mobility response to unobserved common determinants. Moreover, additional estimation results suggest that also there is interdependence among entry, exit and incumbent mobility.