Duration of new firms: The role of startup financial conditions, industry and aggregate factors

Abstract

This paper documents the relative importance of firm, industry and aggregate factors on the post-entry performance of new firms. This study utilizes a unique administrative dataset, T2LEAP, which contains employment and balance sheet information for all incorporated Canadian firms. The data allow us to include financial variables such as the debt-to-asset ratio (leverage) and document their impact on firm survival. We perform duration analysis on all the entrant manufacturing firms during the period 1985-1996. In addition to leverage, we find that: firm characteristics such as size and labour productivity; industry conditions, such as the real exchange rate, the difference in the US-Canada tariff rates, entry penetration, and the capital-labour ratio; and aggregate conditions in terms of the yield gap also play a role in the survival prospects of new firms. © 2012.