Envestigating the effective factors on new firm’s survival; A case study of industries in Mazandaran province

پژوهش نامه مدیریت تحول

Article 2, Volume 8, Autumn & Winter 2017 - Serial Number 16, February 2017, Pages 1-20   

Document Type: Articles

DOI: 10.22067/pmt.v8i16.58036

Authors

maryam ghaedi^* ; Mehrdad Madhoshi

Mazandaran

Abstract

1- INTRODUCTION
Although the entry of firms is important, we can consider their lifespan as an important factor in achieving the goals of long-term policies in employment and economic growth. The survival of firms and its causes are important issues attracting considerable interest today, and accordingly, the answer to the question of whether survival is the result of the particular characteristics of a firm, industry, or macroeconomic conditions of the community is of utmost importance. The creation of new firms as a tool for reducing unemployment and the growth of employment in a region is of great importance and bankruptcy of a new company and its economic and social consequences reveal the need to study the survival of newcomers. The withdrawal of any firm from the industry will result in the withdrawal of part of the investment in that industry and creation of costs causing irreparable damage to economic growth. Therefore, considering what mentioned on factors affecting the survival of firms, the present paper studies the effect of macroeconomic variables on the survival of new firms.
2- THEORETICAL FRAMEWORK
Under inflationary conditions, the firm's nominal profitability increases over time due to currency depreciation. Therefore, based on the increase in the inflation rate, dividends and, consequently, corporate survival will improve. Companies can implement different strategies to survive in a high-inflation environment. Previous findings have also shown that companies use different strategies such as quantitative reduction, decentralized decision making, reduced product quality, development of syndicates, shorter payment periods, and other forms of financial, shopping, and marketing strategies. Firms reluctant to adopt survival strategies will fall in the business. Therefore, survival strategies are especially important for companies in high- inflation environments. In this research, inflation is considered as a control variable. The results of previous research, using the analysis of the effect of exchange rate changes on profitability and survival and sales of service sector companies, showed that the real appreciation of the Canadian dollar reduced the probability of survival, sales and profitability of companies, while the decline in dollar prices has a reversal effect. In addition, the negative effect of rising exchange rates on companies' survival is lower for most manufacturing companies.
3- METHODOLOGY
Statistically, survival analysis is defined as a set of different statistical methods employed to analyze non-negative random variables related to the lifespan of people and objects. Given the existence of censored data (the companies that remain at the end of the study period), the use of parametric methods is problematic. In this respect, both life table and product limit estimator (Kaplan-Meier) methods are used. In addition, Hazard semi-parametric model is employed to test hypotheses. To collect data and information in this study, the database of the Ministry of Industries and Mines, the Central Bank of the Islamic Republic of Iran and the Statistical Center of Iran and companies in different industries of Mazandaran province (established between 1985-2015), have been used. Collected data is processed and analyzed by winTDA.
The total number of firms licensed during the study period is 4,144 of which 917 revoked and 3217 firms were still active until the end of the study period (August 2015). Thus, 385 firms were selected as sample but since TDA works better for samples with greater volume, we analyzed 1,000 firms.
4- RESULTS and DISCUSSION
Since the significant level for the inflation rate is 0.9925, hence, the first hypothesis is accepted at the significant level of 5%. That is, with the increase in inflation, the probability of leaving the industry decreases leading to an increase in survival rate.
This can be explained in the following way. Inflationary disrupts economic situation of the country and all firms, even those unprofitable ones, will be licensed to raise prices. Consequently, under such conditions, firms can reduce the final production cost by lowering the quality of manufactured products, and increase their profitability by raising their product prices, too.
Considering the value of the corresponding column, the significance level of the exchange rate variable (0.9597) is above 95%, thus the significance of the relationship between this variable and the company's survival is proven. An increase in the exchange rate will enhance the price level of imported goods in the domestic market, and the demand for this category of goods is expected to decrease and demand for domestic goods will increase. Moreover, by the increase in the exchange rate, the relative price of exported goods in the country declines in foreign markets, and as a result, demand for these goods is expected to increase.
5- CONCLUSION and SUGGESTIONS
The present study investigates the effect of inflation and exchange rates on survival of companies in Mazandaran province. Since rising inflation can increase interest rates in the economy, conducting other studies on these two variables, as well as other important macroeconomic variables such as unemployment rate, are necessary.
Furthermore, performing similar research on these variables in another time period location and comparing it with the results of this research is suggested.
In addition to conducting this research in other provinces, the present paper may provide the foundation for further studies to analyze industry, firms and workers, characteristics of company's founders and other variables as effective factors on survival of manufacturing companies in different industries across the country and other provinces.

Keywords

Macroeconomic Variables; New Firms; Surviv analysi; Mazandaran province

References

Aspelund, A.; Berg-Utby, T., & Skjevdal, R. (2005). Initial resources’ influence on new venture survival: a longitudinal study of new technology-based firms. Technovation, 25, 1337-1347.

Baggs, J., & Brander, J. (2006). Trade liberalization and financial leverage. Journal of International Business Studies, 37(2), 196-211.

Baggs, J. (2005). Firm survival and exit in response to trade liberalization. Canadian Journal of Economics, 38(4), 1364-1383.

Baggs, J.; Beaulieu. E., & Fung, L. (2010). Are service firm’s affected by exchange rate movements? Review of Income and Wealth Forthcoming.

Baggs, J.; Beaulieu. E., & Fung, L. (2013). Persistent effects of transitory exchange rate shocks on firm dynamics. Contemporary Economic Policy.

Baggs, J.; Beaulieu, E., & Fung, L. (2009). Firm survival, performance, and the exchenge rate. Canadian Journal of Economic/Revue Canadienne Deconomique, 42(2), 393-421.

Baggs, J.; Beaulieu, E., & Fung, L. (2008). The impact of real exchenge rate movements on service sector firms. University of Victoria.

Baldwin, J.; Bian, L.; Dupy, R., & Gellatly, G. (2000). Failure rates for new Canadian firms: new perspectives on entry and exit. Mimeo: Statistics Canada.

Blossfeld, H. P., & Rohwer, G. (2002). Trchniques of event history modeling. (2nd Ed), Lowrence Erlbaum Associates, Inc, 4-37.

Cox, D. R. (1972). Regression models and life tables. Journal of the Royal Statistical Society, Series B, 34(2), 187-202.

Dzhumashev, R.; Mishra, V., & Smyth, R. (2013). Exporting, R&D investment and firm survival. Monash University. Department of economics. Discussion paper 39/11.

Ebrahimzadeh, F. (2005). Non-parametric estimation of the survival function and cut left interval censored data and its application in determining the factors affecting the survival of colorectal cancer, Unpublished doctoral dissertation, Tarbiat Modarres University, Faculty of Medical Sciences (in Persian).

Feize poor, M. A., & Radmanesh, S. (2013). The distribution of size of the manufacturing industries companies and its variations. Journal of Economic Research, 12(4), 125-153 (in Persian).

Feize poor, M. A.; Saeeda Ardakani, S., & Poosh Dozbashi, H. (2011). Evaluation effect of Life of small and medium enterprises in changes to employment. Journal of entrepreneurship, 14(4), 67-86 (in Persian).

Fouladi, M. (2012). Investigate the effect of exchange rate’s changes on level of prices, production, import and export of various sectors of the economy using a computable general equilibrium model, Journal of Planning and Budget, 17(2), 127-148 (in Persian).

Fung, L. (2008). Large real exchange rate movements, firm dynamics, and productivity growth, Canadian Journal of Economics, 41(2): 391-424.

Gumbe, S., & Kaseke, N. (2011). Manufacturing firms and hyperinflation- survival options: the case of Zimbabwe manufacturers (2005-2008). Journal of Management and Marketing Research, 7(3), 1-22

Holmes, P.; Hunt, A., & Stone, I. (2010). An analysis of new firm survival using a hazard function, Applied Economics, 42(2), 185-195.

Kazempour Dizji, M. (2001). Estimate survival function by Kaplan-Meier method in patients with esophageal cancer using the boot Strip admitted to Shahid Modares hospital during the years 1367-1377, Master's thesis, Tarbiat Modarres University, Faculty of Medical Sciences (in Persian).

Klapper, L., & Richmond, C. (2013). Patterns of business creation, survival and growth (evidence from Africa). Policy research working paper 5828. http://econ.worldbank.org.

Liu, J. (2009). Business failures and macroeconomic factors in the UK. Bulletin of Economic Research, 61(1), 0307-3378.

Madhoshi, M., & Nasiri, A. (2010). The influence of industry characteristic on new firm’s survival. Journal of Executive Management, 1(38), 127-148 (in Persian).

Pavcnik, N. (2002). Trade Liberalization, Exit, and Productivity Improvement: Evidence from Chilean Plants. Review of Economic Studies 69(1), 245-76.

Rohwer, G., & Portter, U. (2002). TDA User’s Manual. Ruhr – University at Bochum. Fakultat fur Sozialwissenschaften, GB1. 44780 Bochum, Germany.

Roshani, D. (2011). One index with the base cut proportional hazard regression to determine the link function and its applications in medical studies. Doctoral dissertation, Tarbiat Modarres University, faculty of medical sciences (in Persian).

Walters, J. S. (2009). What is a Cox model? School of Health and Related Research (ScHARR), University of Sheffield, from http://www.Whatisseries. co.uk.

Wennberg, K., & Lindqvist, G. (2010). The effect of clusters on the survival and performance of new firm. Small Bus Econ, 34, 221–241.