Review of Industrial Organization (2006) 28:285–306 © Springer 2006
The Effect of Industry, Region, and Time on
New Business Survival – A Multi-Dimensional
, UDO BRIXY
and OLIVER FALCK
Faculty of Economics and Business Administration, Technical University Bergakademie
Freiberg, Lessingstraβe. 45, 09596 Freiberg, Germany;
Institute for Employment Research at the Federal Employment Services, Regensburger
Straße 104, 90327 Nuremberg, Germany;
Faculty of Economics and Business Administration, University of Passau, Innstraße 27,
94032 Passau, Germany
Abstract. We analyze the effect of industry, region, and time on new business survival
rates by means of a multi-dimensional approach. The data relate to West German districts
in the 1983–2000 period. The survival chances of start-ups tend to be relatively low in
industries characterized by a high minimum efﬁcient size and high numbers of entries.
We ﬁnd that regional characteristics play a rather important role and that introducing
the regional dimension leads to considerable improvements of the estimation results. The
signiﬁcance of the regional dimension is also reﬂected in a remarkably high level of
Key words: Entry, hazard, market selection, new ﬁrm survival.
JEL Classiﬁcation: D21, L10, M13, R10.
Setting up a ﬁrm can be an arduous task. Entering a market and
competing successfully is subject to severe uncertainty and requires diverse
qualiﬁcations that are rarely contained in one single person. As a result, a
considerable proportion of new ﬁrms leave the market relatively soon after
entering; thus, in some industries or regions only a minority of the entrants
is able to survive for a longer period of time.
Understanding this selection process could contribute considerably to
our knowledge about the main determinants that drive the market pro-
cesses and the development of ﬁrm populations. While considerable pro-
gress in our knowledge about new ﬁrm formation processes has been made
Author for correspondence: E-mail: email@example.com