Review of Industrial Organization 17: 285–300, 2000.
© 2000 Kluwer Academic Publishers. Printed in the Netherlands.
Determinants of Hazard Confronting New Entry:
Does Financial Structure Matter?
Department of Economics, University of Thessaly, Argonafton & Filellinon St., 382 21 Volos,
Greece, E-mail: email@example.com
Athens University of Economics and Business, 76 Patission Street, Athens 10434, Greece
Abstract. This paper attempts to identify the determinants of hazard confronting 219 new manufac-
turing ﬁrms established in 1982–84 and followed up to 1992 using a Cox regression model. Three
sets of variables are combined in the analysis: ﬁrm, sector and cohort speciﬁc. Financial, ﬁrm speciﬁc
characteristics such as larger initial ﬁnancial capital size, conservative borrowing, heavier ﬁxed asset
commitment and lower diversiﬁcation in terms of holding other ﬁrms’ assets are estimated to reduce
ﬁrm hazard. Higher sectoral entry and lower sunk cost sectoral requirements by increasing market
contestability increase risk of failure together with cyclical variations.
Key words: Entry, exit, failure, hazard, new ﬁrms.
The aim of this paper is to identify the factors that determine the survival of new
ﬁrms in Greek manufacturing in the 1982–1992 period. To our knowledge this is
the ﬁrst empirical enquiry in this context in Greece. The research draws upon the
fast growing literature on post-entry performance of ﬁrms that has so far concen-
trated on few countries, namely the U.S., U.K., Germany, Canada and Portugal.
The present research claims that not only it adds to the literature by offering evid-
ence from Greece, but also that it does so by using new variables stemming from
detailed, ﬁnancial ﬁrm-speciﬁc information as provided by ﬁrms’ balance sheets.
In addition the use of a sunk cost proxy at the industry level conceived as a barrier
to exit and hence reducing the hazard may be claimed to be on the novelty side of
The analysis employs both non-parametric and parametric techniques for ana-
lysing ﬁrm survival and duration. The cumulative survival rate of Greek manufac-
turing ﬁrms is 50% in the ﬁfth year after entry while it is reduced to 29% after nine
years. Firm size, growth and proﬁtability as well as heavy commitment in ﬁxed
This study has been supported with funding from the General Secretariat of Research and
Technology (Ministry of Development, PENED Project).