Udo Brixy

Whether firms founded during or outside economic crises have greater growth potential is an important question for both prospective entrepreneurs and policy makers. Existing research offers conflicting answers, and mostly either focuses on aggregate cohort-level effects or selectively excludes small new firms from the analyses. Using extensive linked employer-employee data on young German firms around and during the Global Financial Crisis, a period of sharply reduced access to external capital and recession, we show that young firms respond to cyclical conditions in highly heterogeneous ways. Our firm-level results reveal that the average new firm found it easier to hire its first employees when it was founded during the crisis. These firms achieved countercyclical growth by hiring career entrants. More specifically, hiring in very young (<1.5 years) and small to medium-sized (below the 90th percentile) young firms was countercyclical, while this was not the case for older and larger young firms. Thus, the firm-specific effects for young entrepreneurial firms may be very different from those reported in previous research. Our results suggest that market entry during a crisis may facilitate hiring and that policies that promote entrepreneurship may usefully complement policies that encourage labor hoarding by incumbents during recessions.

Whether firms founded in economic crises have sufficient growth potential is an important question for both aspiring entrepreneurs and policy makers. However, existing research in entrepreneurship ...

Brixy U. The significance of entry and exit for regional productivity growth, Regional Studies. This study addresses the debate about whether start-ups increase regional productivity growth through such effects as the fostering of competition. A new longitudinal dataset at the establishment level for eastern and western Germany is used to analyse the impact of the number of start-ups and their survival on the growth of total factor productivity and employment. It is demonstrated that start-ups do affect regional productivity growth. But the impact is not proved continually: it varies between the manufacturing and the service sector and between the two parts of Germany.

As the high share of failed new businesses shows, the marked success of new firms is still rather low. Hence, enhancing the quality of new firms is an important goal of entrepreneurship support policies. Schemes that give professional assistance to individuals who want to start up a business are a key feature of most developed countries' policies towards improving the performance of new firms. In our sample, only approximately half of nascent entrepreneurs seek professional assistance. Given that assistance is highly subsidized and available to everyone interested in starting up a firm, we ask why certain nascent entrepreneurs do not seek assistance. By using survey data consisting of an initial screening interview and a follow-up interview after 1 year, we are able to show that men and well-educated founders tend to refrain from professional assistance. Notably, those without any experience in the industry of the planned business are more apt not to seek assistance. This finding suggests that cognitive biases such as overconfidence might play a role in explaining the assistance-avoiding behaviour. Policy measures aiming at improving the knowledge of potential entrepreneurs are therefore well advised to target well-educated males in particular.

Although there is a large body of literature on the determinants of regional variation in new firm formation little is known on the spatial differences in new firm survival. The often-stated positive relationship between entry and exit suggests a negative correlation between entry and survival. On the other hand it seems convincing that regions with high birth rates should also have high survival rates, because a favourable environment for the founding of new firms should also stimulate the development of these firms. However, our analysis reveals an overall negative relationship. In detail the spatial pattern of a combination of both rates is complex, and all types of possible relationships exist. We analyse the factors that influence regional birth and survival rates of new firms for 74 West German regions over a 10-year period. It is shown that in the service sector most variables literally work in opposite directions in the birth and survival rates models. The spatial structures which promote the formation of new service firms are detrimental to the survival of these firms. This does not hold for the manufacturing sector where we find evidence for the ‘supportive environment thesis’. Obviously both industries have different requirements for their ‘seed bed’ but not for their survival.