Models of Firm Dynamics and the Hazard Rate of Exits: Reconciling Theory and Evidence using Non-proportional Hazard Regression Models

Arnab Bhattacharjee, Swagatam Sen

Research output: Chapter in Book/Report/Conference proceedingChapter (peer-reviewed)peer-review

Abstract

We propose a new hazard regression model with age-varying covariate effects that incorporates many of the most prominent empirical regularities in studies of firm dynamics. The model admits negative effects of initial size that may either fall to zero with age (active learning model) or stay persistently negative (passive learning model), baseline hazard rates that decrease with age at higher durations, and adverse effects of macroeconomic shocks that affect only younger firms. We also allow for individual firm level unobserved heterogeneity. Our model estimates show evidence of active learning in quoted UK firms. Further, the effect of macroeconomic shocks decreases with age, and baseline hazard exhibits Increasing Mean Residual Life.
Original languageEnglish
Title of host publicationPartial Identification in Econometrics and Related Topics
EditorsN. Ngoc Thach, Hung Nguyen, Vladik Kreinovich
PublisherSpringer
Pages25-48
Number of pages24
ISBN (Electronic)9783031591105
ISBN (Print)9783031591099, 9783031591129
DOIs
Publication statusPublished - 31 Jul 2024

Publication series

NameStudies in Systems, Decision and Control
Volume531
ISSN (Print)2198-4182
ISSN (Electronic)2198-4190

Keywords

  • Firm dynamics
  • Firm exit
  • Hazard regression models.
  • Learning
  • Non-proportional hazards

ASJC Scopus subject areas

  • Computer Science (miscellaneous)
  • Control and Systems Engineering
  • Automotive Engineering
  • Social Sciences (miscellaneous)
  • Economics, Econometrics and Finance (miscellaneous)
  • Control and Optimization
  • Decision Sciences (miscellaneous)

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