Legal Form, Growth and Exit of West German Firms: Empirical Results for Manufacturing, Construction, Trade and Service Industries

CEPR Discussion Paper Series 1401

Posted: 4 Dec 1996

See all articles by Michael J. Woywode

Michael J. Woywode

ZEW – Leibniz Centre for European Economic Research - International Finance and Financial Management

Dietmar Harhoff

Max Planck Institute for Innovation and Competition; Ludwig-Maximilians-Universität München; Centre for Economic Policy Research (CEPR)

Konrad O. Stahl

University of Mannheim - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: May 1996

Abstract

In this paper we discuss determinants of firm survival and growth in Germany within its pre-1989 boundaries. We argue that the legal form adopted by a firm is an important indicator of the riskiness of projects undertaken and that firms under limited liability should be characterized by higher than average insolvency and employment growth rates. We test these predictions by considering the survival chances and employment growth rates of various types of enterprises in a sample of approximately 11,000 West German firms from all major sectors of the German economy. We distinguish between voluntary liquidation without losses to creditors and bankruptcy as forced liquidation. We demonstrate that firms under limited liability are characterized by higher growth and higher insolvency rates than comparable firms under full liability. Surprisingly, the likelihood of insolvencies is a non-monotonic function of firm size, while the likelihood of voluntary liquidation decreases monotonically. Firms whose owners are approaching retirement age are characterized by relatively high hazards of voluntary liquidation, while the propensity to insolvency is not affected by the owner's age. The basic empirical results hold in pooled samples as well as in estimates at the level of the one-digit industries of manufacturing, construction, trade and services.

JEL Classification: D92, J23, K20, L11

Suggested Citation

Woywode, Michael J. and Harhoff, Dietmar and Stahl, Konrad O., Legal Form, Growth and Exit of West German Firms: Empirical Results for Manufacturing, Construction, Trade and Service Industries (May 1996). CEPR Discussion Paper Series 1401, Available at SSRN: https://ssrn.com/abstract=4481

Michael J. Woywode

ZEW – Leibniz Centre for European Economic Research - International Finance and Financial Management ( email )

Postfach 103443
Mannheim, D-68034
Germany

Dietmar Harhoff

Max Planck Institute for Innovation and Competition ( email )

Marstallplatz 1
Munich, Bayern 80539
Germany
+49 89 24246 550 (Phone)
+49 89 24246 599 (Fax)

HOME PAGE: http://www.ip.mpg.de

Ludwig-Maximilians-Universität München ( email )

Munich, 80539
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Konrad O. Stahl (Contact Author)

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany
+49 621 181 1875 (Phone)
+49 621 181 1874 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
1,195
PlumX Metrics