Speaker(s): Peter
Thompson
Title:
"Selection and Firm Survival. Evidence from the Shipbuilding
Industry, 1825-1914"
Abstract
Several alternative theories of firm performance can
explain the well-known observation that survival is negatively related to age,
but all of them exploit the idea that age serves as a proxy for an omitted
variable. However, a more mundane explanation ? selection bias driven by
variations in firm quality ? may also underlie the phenomenon. This paper
employs a 90-year plant-level panel data set on the US iron and steel
shipbuilding industry of the 19th and early 20th centuries to discriminate
between the two explanations. The ship-building industry exhibits the usual
joint dependency of survival on age and size, but this dependency is
eliminated after controlling for heterogeneity by using pre-entry experience
as a proxy for firm quality. The evidence points to a dominant role of
selection bias in the age-dependency of survival. At the same time, pre-entry
experience is found to have a large and extremely persistent effect on
survival, and this finding is inconsistent with standard explanations for the
role of pre-entry experience on firm performance.