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Determinants of Firm Failure: Empirical Evidence from C hina
Author(s) -
He Canfei,
Yang Rudai
Publication year - 2016
Publication title -
growth and change
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.657
H-Index - 55
eISSN - 1468-2257
pISSN - 0017-4815
DOI - 10.1111/grow.12116
Subject(s) - competition (biology) , crowds , productivity , subsidy , panel data , market failure , empirical evidence , economics , labour economics , coordination failure , business , industrial organization , monetary economics , market economy , microeconomics , economic growth , econometrics , ecology , philosophy , computer security , epistemology , computer science , biology
During the economic transition, C hinese industries are highly dynamic, with substantial firm entry and failure. This study investigates the driving forces of firm failure in C hina. Based on the annual survey of industrial firms during 1998–2007, this study first describes the patterns of firm failure. On average, less productive and older firms are more likely to fail, while firms with governmental supports are more likely to survive. Statistical results based on the linear probability model for panel data indicate that market competition crowds out less productive firms. Competition dominates learning effects and imposes challenges on the survival of older firms. There is an inverted U ‐shaped relationship between firm age and firm failure. Local supportive policies such as subsidies and banking loans can reduce the chance of firm failure. Governmental policies also moderate the impact of productivity and firm age on firm failure. The findings from this study enrich the understanding of industrial dynamics in the transitional C hina.