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Intra-industry firm heterogeneity, sub-optimal adaptation and exit hazard: a fitness landscape approach to firm survival and learning

Intra-industry firm heterogeneity, sub-optimal adaptation and exit hazard: a fitness landscape approach to firm survival and learning

Trushin, Eshref ORCID: 0000-0001-9058-4262 and Ugur, Mehmet ORCID: 0000-0003-3891-3641 (2020) Intra-industry firm heterogeneity, sub-optimal adaptation and exit hazard: a fitness landscape approach to firm survival and learning. Economics of Innovation and New Technology. pp. 1-22. ISSN 1043-8599 (Print), 1476-8364 (Online) (In Press) (doi:https://doi.org/10.1080/10438599.2020.1766655)

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Abstract

We draw on insights from the fitness landscape literature and from models of firm dynamics with learning to hypothesise that: (i) firms in industries with higher company age or size heterogeneity have higher exit hazard after controlling for age, size, and a variety of other predictors of firm survival; and (ii) higher levels of R&D investment mitigate the hazard-increasing effects of industry firm heterogeneity after controlling for the direct effects of R&D intensities at industry and firm level. We test for these novel sources of selection with evidence from a panel dataset of 35,136 R&D-active UK firms from 1998 to 2012 and a range of discrete-time hazard estimators. The findings, which remain robust to multiple sensitivity checks, offer two novel contributions to the literature: (i) firm heterogeneity is not just a passive precondition for subsequent selection process in industry evolution; this heterogeneity enhances selection as more firms might be stranded in suboptimal positions; (ii) firms in more heterogenous industries can mitigate the hazard-increasing effects through R&D investment that facilitates adaptation and search for better fitness locations.

Item Type: Article
Uncontrolled Keywords: Company survival, rugged fitness landscape, firm heterogeneity, R&D, NK model
Subjects: H Social Sciences > HB Economic Theory
Faculty / Department / Research Group: Faculty of Business
Faculty of Business > Department of Human Resources & Organisational Behaviour
Faculty of Business > Institute of Political Economy, Governance, Finance and Accountability (IPEGFA)
Faculty of Business > Institute of Political Economy, Governance, Finance and Accountability (IPEGFA) > Greenwich Political Economy Research Centre (GPERC)
Last Modified: 30 Nov 2020 12:38
Selected for GREAT 2016: None
Selected for GREAT 2017: None
Selected for GREAT 2018: None
Selected for GREAT 2019: None
Selected for REF2021: None
URI: http://gala.gre.ac.uk/id/eprint/30335

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