Advertisement

Small Business Economics

, Volume 39, Issue 1, pp 231–251 | Cite as

The geographic determinants of bankruptcy: evidence from Switzerland

  • Stefan Buehler
  • Christian Kaiser
  • Franz Jaeger
Article

Abstract

This paper examines the geographic determinants of firm bankruptcy. We employ hazard rate models to study the bankruptcy risk of a firm, allowing for time-varying covariates. Based on a large sample from all geographic areas and the major sectors of the Swiss economy, we find the following main results: (1) Bankruptcy rates tend to be lower in the central municipalities of agglomerations; (2) bankruptcy rates are lower in regions with favorable business conditions (where corporate taxes and unemployment are low and public investment is high); (3) private taxes and public spending at the local level have little impact on bankruptcy rates.

Keywords

Bankruptcy Geography Agglomeration Religion Language Exit 

JEL Classifications

C41 R10 Z10 

Notes

Acknowledgments

We are grateful to the associate editor, Philipp Koellinger, and three anonymous referees for many detailed comments. We also thank Dirk Burghardt, Manfred Fischer, Bruno Frey, Dennis Gärtner, Luigi Guiso, Daniel Halbheer, Ulrich Kaiser, Mariko Klasing, Rico Maggi, Gianmarco Ottaviano, Dieter Pennerstorfer, Armin Schmutzler, Enrique Schroth, Christoph Weiss, and seminar participants at Arlington (IIOC 2008), Berne (Swiss IO Day 2006), Brussels (EcoMod), Lugano, Milan (EEA 2008), Munich (VfS 2007), Valencia (EARIE 2007), and Zurich for helpful discussions and suggestions. Support from the Swiss National Science Foundation (through grant no. PP0012-114754), the Swiss Federal Statistical Office, and the Cantonal Bank of St. Gallen is gratefully acknowledged. The usual disclaimer applies. In particular, the opinions expressed in this paper are those of the authors and are not attributable to HSBC. The authors are solely responsible for the contents.

Supplementary material

11187_2010_9301_MOESM1_ESM.pdf (56 kb)
PDF (56 KB)
11187_2010_9301_MOESM2_ESM.pdf (1.8 mb)
PDF (1822 KB)

References

  1. Agarwal, R., & Audretsch, D. (2001). Does entry size matter? The impact of the life cycle and technology on firm survival. Journal of Industrial Economics, 49, 21–43.CrossRefGoogle Scholar
  2. Agarwal, R., & Gort, M. (1996). The evolution of markets and entry, exit and survival of firms. Review of Economics and Statistics, 78, 489–498.CrossRefGoogle Scholar
  3. Alcácer, J., & Chung, W. (2007). Location strategies and knowledge spillovers. Managment Science, 53, 760–776.CrossRefGoogle Scholar
  4. Audretsch, D. B. (1995). Innovation and industry evolution. Cambridge, MA: MIT Press.Google Scholar
  5. Audretsch, D. B., Houweling, P., & Thurik, A. R. (2000). Firm survival in the Netherlands. Review of Industrial Organization, 16, 1–11.CrossRefGoogle Scholar
  6. Audretsch, D. B., Bönte, W., & Tamvada, J. P. (2007). Religion and entrepreneurship. CEPR Discussion Paper No. 6378.Google Scholar
  7. Berglund, E., & Brännäs, K. (2001). Plants’s entry and exit in Swedish municipalities. Annals of Regional Science, 35, 431–448.CrossRefGoogle Scholar
  8. Boschma, R. A., & Wenting, R. (2007). The spatial evolution of the British automobile industry: Does location matter? Industrial and Corporate Change, 16, 213–238.CrossRefGoogle Scholar
  9. Brüderl, J., & Schüssler, R. (1990). Organizational mortality: The liabilities of newness and adolescence. Administrative Science Quarterly, 35, 530–547.CrossRefGoogle Scholar
  10. Brüderl, J., Preisendörfer, P., & Ziegler, R. (1992). Survival chances of newly founded business organizations. American Sociological Review, 57, 227–242.CrossRefGoogle Scholar
  11. Buehler, S., Kaiser, C., & Jaeger, F. (2005). Competition policy and exit rates: Evidence from Switzerland. Contributions to Economic Analysis & Policy, 4, Article 15. Available at: http://www.bepress.com/bejeap/contributions/vol4/iss1/art15.
  12. Buehler, S., Kaiser, C., & Jaeger, F. (2006). Merge or fail? The determinants of mergers and bankruptcies in Switzerland, 1995–2000. Economics Letters, 90, 88–95.CrossRefGoogle Scholar
  13. Buenstorf, G., & Klepper, S. (2009). Heritage and agglomeration: The Akron tyre cluster revisited. Economic Journal, 119, 705–733.CrossRefGoogle Scholar
  14. Caves, R. E. (1998). Industrial organization and new findings on the turnover and mobility of firms. Journal of Economic Literature, 36, 1947–1982.Google Scholar
  15. Combes, P. P., Duranton, G., Gobillon, L., & Puga, D. (2009). The productivity advantages of large cities: Distinguishing agglomeration from firm selection. Mimeo.Google Scholar
  16. Cox, D. R. (1972). Regression models and life-tables. Journal of the Royal Statistical Society, Series, B34, 187–220.Google Scholar
  17. Cox, D. R. (1975). Partial likelihood. Biometrika, 62, 269–276.CrossRefGoogle Scholar
  18. Dahl, M. S., & Sorenson, O. (2009). The embedded entrepreneur. European Management Review, 6, 172–181.CrossRefGoogle Scholar
  19. Dahl, M. S., & Sorenson, O. (2010). Home sweet home: entrepreneurs’ location choices and the performance of their ventures. Available at: http://www.ssrn.com/abstract=1596810. Accessed 27 Apr 2010.
  20. Dunne, T., Roberts, M. J., & Samuelson, L. (1988). The growth and failure of U.S. manufacturing plants. Quarterly Journal of Economics, 104, 671–698.CrossRefGoogle Scholar
  21. Dunne, T., Klimek, S. D., & Roberts, M. J. (2005). Exit from regional manufacturing markets: The role of entrant experience. International Journal of Industrial Organization, 23, 399–421.CrossRefGoogle Scholar
  22. Duranton, G., & Puga, D. (2001). Nursery cities: Urban diversity, process innovation, and the life cycle of products. American Economic Review, 91, 1454–1477.CrossRefGoogle Scholar
  23. Duranton, G., & Puga, D. (2004). Micro-foundations of urban agglomeration economies. In J. V. Henderson & J. F. Thisse (Eds.), Handbook of regional and urban economics (Vol. 4, pp. 2063–2117). Amsterdam: North-Holland.Google Scholar
  24. Evans, D. S., & Leighton, L. S. (1990). Small business formations by employed and unemployed workers. Small Business Economics, 2, 319–330.CrossRefGoogle Scholar
  25. Everett, J., & Watson, J. (1998). Small business failure and external risk factors. Small Business Economics, 11, 371–390.CrossRefGoogle Scholar
  26. Fearon, J. D. (2003). Ethnic and cultural diversity by country. Journal of Economic Growth, 8, 195–222.CrossRefGoogle Scholar
  27. Feld, L. P., & Kirchgässner, G. (2001). Income tax competition at the state and local level in Switzerland. Regional Science and Urban Economics, 31, 181–213.CrossRefGoogle Scholar
  28. Fernández, R., & Fogli, A. (2009). Culture: An empirical investigation of beliefs, work and fertility. American Economic Journal: Macroeconomics, 1, 146–177.CrossRefGoogle Scholar
  29. Fotopoulos, G., & Louri, H. (2000). Location and survival of new entry. Small Business Economics, 14, 311–321.CrossRefGoogle Scholar
  30. Freeman, J., Carroll, G. R., & Hannan, M. T. (1983). The liability of newness: Age dependence in organizational death rates. American Sociological Review, 48, 692–710.CrossRefGoogle Scholar
  31. Fujita, M., & Krugman, P. (2004). The new economic geography: Past, present and the future. Papers in Regional Science, 83, 139–164.CrossRefGoogle Scholar
  32. Fujita, M., Krugman, P., & Venables, A. J. (1999). The spatial economy: Cities, regions, and international trade. Cambridge, MA: MIT Press.Google Scholar
  33. Geroski, P. A. (1995). What do we know about entry? International Journal of Industrial Organization, 13, 421–440.CrossRefGoogle Scholar
  34. Glaeser, E. L., Kallal H. D., Scheinkman, J. A., & Schleifer, A. (1992). Growth in cities. Journal of Political Economy, 100, 1126–1152.CrossRefGoogle Scholar
  35. Glauben, T., Tietje, H., & Weiss, C. (2006). Agriculture on the move: Exploring regional differences in farm exit rates in Western Germany. Jahrbuch für Regionalwissenschaft, 26, 103–118.CrossRefGoogle Scholar
  36. Gottmann, J. (1980). Center and periphery. London: Sage.Google Scholar
  37. Guiso, L., Sapienza, P., & Zingales, L. (2006). Does culture affect economic outcomes? Journal of Economic Perspectives, 20, 23–48.CrossRefGoogle Scholar
  38. Guiso, L., Sapienza, P., & Zingales, L. (2009). Cultural biases in economic exchange? Quarterly Journal of Economics, 124, 1095–1131.CrossRefGoogle Scholar
  39. Hardin, J., & Hilbe, J. (2007). Generalized linear models and extensions (2nd ed.). College Station, TX: Stata Press.Google Scholar
  40. Harhoff, D., Stahl, K., & Woywode, M. (1998). Legal form, growth and exit of West German firms—empirical results for manufacturing, construction, trade and service industries. Journal of Industrial Economics, 46, 453–488.CrossRefGoogle Scholar
  41. Hudson, J. (1989). The birth and death of firm. Quarterly Review of Economics and Business, 29, 68–86.Google Scholar
  42. Jacobs, J. (1969). The economics of cities. New York: Vintage.Google Scholar
  43. Jenkins, S. J. (1995). Easy estimation methods for discrete-time duration models. Oxford Bulletin of Economics and Statistics, 57, 129–138.CrossRefGoogle Scholar
  44. Kalbfleisch, J. D., & Prentice, R. L. (1980). The statistical analysis of failure time data. New York: Wiley.Google Scholar
  45. Kiefer, N. M. (1988). Economic duration data and hazard functions. Journal of Economic Literature, 26, 646–679.Google Scholar
  46. Klepper, S. (2007). Disagreements, spinoffs, and the evolution of Detroit as the capital of the U.S. automobile industry. Management Science, 53, 616–631.CrossRefGoogle Scholar
  47. Klepper, S., & Thompson, S. (2007). Spin-off entry in high-tech industries: Motives and consequences. In F. Malerba & S. Brusoni (Eds.), Perspectives on innovation (pp. 187–218). Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  48. Krueger, J. J., & von Rhein, K. (2009). Knowledge, profitability and exit of German car manufacturing firms. Economics of Innovation and New Technology, 18, 107–122.CrossRefGoogle Scholar
  49. Lane, S. J., & Schary, M. (1991). Understanding the business failure rate. Contemporary Policy Issues, 9, 93–105.CrossRefGoogle Scholar
  50. Love, J. H. (1996a). The determinants of variations in exit rates. Empirica, 23, 107–118.CrossRefGoogle Scholar
  51. Love, J. H. (1996b). Entry and exit: A county-level analysis. Applied Economics, 28, 441–451.CrossRefGoogle Scholar
  52. Mata, J., & Portugal, P. (1994). Life duration of new firms. Journal of Industrial Economics, 42, 227–245.CrossRefGoogle Scholar
  53. Mata, J., Portugal, P., & Guimarães, P. (1995). The survival of new plants: Start-up conditions and post-entry evolution. International Journal of Industrial Organization, 13, 459–481.CrossRefGoogle Scholar
  54. McCleary, R., & Barro, R. J. (2006). Religion and economy. Journal of Economic Perspectives, 20, 49–72.CrossRefGoogle Scholar
  55. Melitz, M. J. (2003). The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica, 71, 1695–1725.CrossRefGoogle Scholar
  56. Melitz, M. J., & Ottaviano, G. I. P. (2008). Market size, trade, and productivity. Review of Economic Studies, 75, 295–316.CrossRefGoogle Scholar
  57. Melo, P. C., Graham, D. J., & Noland, R. B. (2009). A meta-analysis of estimates of urban agglomeration economies. Regional Science and Urban Economics, 39, 332–342.CrossRefGoogle Scholar
  58. Neffke, F., Henning, M. S., Boschma, R., Lundquist, K. J., & Olander, L. O. (2010). The dynamics of agglomeration externalities along the life cycle of industries. Regional Studies, 44, 1–17.CrossRefGoogle Scholar
  59. Puga, D. (2010). The magnitude and causes of agglomeration economies. Journal of Regional Science, 50, 203–219.CrossRefGoogle Scholar
  60. Ranger-Moore, J. (1997). Bigger may be better but is older wiser? Organizational age and size in the New York life insurance industry. American Sociological Review, 62, 903–920.CrossRefGoogle Scholar
  61. Roberts, B. M., & Thompson, S. (2003). Entry and exit in a transition economy: The case of Poland. Review of Industrial Organization, 22, 225–243.CrossRefGoogle Scholar
  62. Rosenthal, S. S., & Strange, W. C. (2004). Evidence on the nature and sources of agglomeration economies. In V. Henderson & J. F. Thisse (Eds.), Handbook of regional and urban economics (Vol. 4, pp. 2119–2171). Amsterdam: North-Holland.Google Scholar
  63. Schary, M. A. (1991). The probability of exit. RAND Journal of Economics, 22, 339–353.CrossRefGoogle Scholar
  64. Segarra, A., & Callejón, M. (2002). New firms’ survival and market turbulence: New evidence from Spain. Review of Industrial Organization, 20, 1–14.CrossRefGoogle Scholar
  65. Shaver, J. M., & Flyer, F. (2000). Agglomeration economies, firm heterogeneity, and foreign direct investment in the United States. Strategic Management Journal, 21, 1175–1193.CrossRefGoogle Scholar
  66. Sorenson, O., & Audia P. G. (2000). The social structure of entrepreneurial activity: Geographic concentration of footwear production in the United States, 1940–1989. American Journal of Sociology, 106, 424–461.CrossRefGoogle Scholar
  67. Swiss Federal Statistical Office. (2004). Religionslandschaft in der Schweiz (The religious landscape of Switzerland). Neuchâtel: Swiss Federal Statistical Office.Google Scholar
  68. Swiss Federal Statistical Office. (2005). Die Raumgliederung der Schweiz (The spatial structures of Switzerland). Neuchâtel: Swiss Federal Statistical Office.Google Scholar
  69. Symeonidis, G. (2002). The effects of competition. Cambridge, MA: MIT Press.Google Scholar
  70. Tabellini, G. (2008). Institutions and culture. Journal of the European Economic Association, 6, 255–294.CrossRefGoogle Scholar
  71. Van den Berg, G. J. (2001). Duration models: Specification, identification, and multiple durations. In J. J. Heckman & E. Leamer (Eds.), Handbook of econometrics (Vol. V, pp. 3381–3460). Amsterdam: North Holland.Google Scholar
  72. Van Kranenburg, H. L., Palm, F. C., & Pfann, G. A. (2002). Exit and survival in a concentrating industry: The case of daily newspapers in the Netherlands. Review of Industrial Organization, 21, 283–303.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC. 2010

Authors and Affiliations

  • Stefan Buehler
    • 1
  • Christian Kaiser
    • 2
  • Franz Jaeger
    • 3
  1. 1.University of St. GallenSt. GallenSwitzerland
  2. 2.HSBCLondonUK
  3. 3.Executive School of Management, Technology and LawUniversity of St. GallenSt. GallenSwitzerland

Personalised recommendations