Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/174556
Year of Publication: 
2017
Series/Report no.: 
LEM Working Paper Series No. 2017/06
Publisher: 
Scuola Superiore Sant'Anna, Laboratory of Economics and Management (LEM), Pisa
Abstract: 
We examine market selection mechanisms and their strength for a representative cohort of US new independent firms. In particular, we explore whether and how effectively markets reward newly-born firms according to their "fitness" in terms of both labour productivity and profitability. Our analysis yields puzzling results in contrast with canonical industry dynamics models. First, we find that selection on differential growth is mainly related to productivity while profitability plays a negligible role. Second, in contrast with the growth of the fitter principle, selection appears to be driven by changes in firms' relative productivity. Third, we explore how new firms' relative fitness affects their growth performance in different sectors. Our results reveal that market selection operates quite differently across them with higher incidence for new-born firms in services, low-tech and less concentrated sectors. Fourth, concerning selection via exit, our results support the survival of the fitter principle with respect to productivity, while relative profitability does not seem to exert any significant effect on survival probabilities. However, the contribution of firm relative "fitness" to the total firm exit rates variation appears to be modest.
Subjects: 
market selection
replicator dynamics
new firm growth
survival
Shapley decomposition
JEL: 
L11
L25
M13
Document Type: 
Working Paper

Files in This Item:
File
Size
543.49 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.