K.U.Leuven - Departement toegepaste economische wetenschappen
DTEW Research Report 0014 pages:1-27
This paper demonstrates that (1) the negative relationship between initial firm size and failure probability, and (2) the aging pattern of the failure rate are sensitive to the adopted definitions of entry and exit. We use two definitions to measure the timing of entry and exit: an economic definition, based on employment levels, and a legal definition, based on the firm's legal status. While initial size is negatively related to the exit rate under the economic definition, the relation becomes positive under the legal definition. The aging effect is much steeper under the legal than under the economic definition.