The Impact of Initial Financial State on Firm Duration Across Entry Cohorts

Abstract

Recent theories of industry dynamics emphasize the role of financial frictions in determining post entry performance of firms. Testing these theories has been difficult because of the lack of financial data on small, young and private firms. Using a unique data set, T2LEAP, this paper considers the survival of new firm in Canadian manufacturing from a financial perspective. Duration analysis quantifies the effects of firm, industry, and aggregate factors. Findings show that nonlinear effects are found with firm leverage. Finally, likelihood decompositions offer insights into the contributing factors to firm hazard for nine entry cohorts.

Keywords: firm exit, duration, leverage, entry cohort

JEL Classification: L11, L60, C41, D92