Determinants of hazard confronting new entry: Does financial structure matter?

Abstract

This paper attempts to identify the determinants of hazard confronting 219 new manufacturing firms established in 1982-84 and followed up to 1992 using a Cox regression model. Three sets of variables are combined in the analysis: firm, sector and cohort specific. Financial, firm specific characteristics such as larger initial financial capital size, conservative borrowing, heavier fixed asset commitment and lower diversification in terms of holding other firms' assets are estimated to reduce firm hazard. Higher sectoral entry and lower sunk cost sectoral requirements by increasing market contestability increase risk of failure together with cyclical variations.