Size, innovation and internationalization: a survival analysis of Italian firms

Margherita Velucchi, University of Florence
Giorgia Giovannetti, University of Florence and Fondazione Masi
Giorgio Ricchiuti, University of Florence

The birth of new firms and their survival in the market are often seen as crucial for economic growth and competitiveness in a modern economy. New firms increase the competitive pressure on incumbents and force them to increase efficiency. They stimulate innovation and make it easier to adopt new technologies, while helping to increase overall productivity, shifting resources from less to more productive activities and pushing the process of internationalization (not only export but also more complex forms such as FDI etc…). This paper focuses on business demography of Italian firms and aim at identifying the relationships among firms’ characteristics and competitiveness proxied by their demographic dynamics. We merge data from Capitalia (2005) and ICE-Reprint (2000-2003) and, using a Cox Model, we analyze the effect of export, FDI, innovation, size and technological level and R&D expenditures on the firms’ probability of survival. Then, we estimate the differences in likelihood of survival between large and small, exporting and non-exporting and innovating and non-innovating firms. We show that size and technological level reduce the failure risk. The positive impact of technology increases as size increases: large firms that operate in high-tech sectors, on average, have higher probability of survival than small firms in traditional sectors. Moreover, internationalized firms show higher failure risk: on average the competition is stronger on international markets, forcing firms to be more efficient. To successfully deal with international competition firms have to be large and/or operate on high-tech sectors. Especially for innovating firms the failure risk is reduced if they operate in high-tech sectors. On the contrary, non-innovating firms can survive only if they are large enough to exploit their market power. Finally, a successful internationalized firm is a high-tech, large and innovating firm.