Growth expectations and the dynamics of firm entry

Enisse Kharroubi

No 1036, BIS Working Papers from Bank for International Settlements

Abstract: How do aggregate conditions affect the dynamics of firm entry? Do recessions force more firms out, allowing for more firms to enter subsequently? Or does this process require other circumstances to thrive? I look into these questions using sectoral data on firm entry and exit for the main economies of the Euro Area over 2009-2019. My main finding is that expected, rather than current, GDP growth shapes the dynamics of firm entry. Specifically, I find that entry increases with past exits at the sector-level, but only when aggregate GDP growth is forecasted to be strong. Also, with strong growth forecasts, past entry developments weight less on the subsequent sectoral entry dynamics. Periods of low entry and high exit, can therefore be followed by strong entry subsequently, when the economy is expected to grow strongly. These findings are robust to the inclusion of several controls. This includes the quality of insolvency proceedings, firms' ability to obtain credit or the presence of barriers to entry. Finally, I show that expectations of private and public investment drive the impact of growth expectations on the dynamics of firm entry.

Keywords: firm entry; exit; growth expectations; private and public investment (search for similar items in EconPapers)
JEL-codes: D25 D84 E32 E62 H32 M13 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2022-08
New Economics Papers: this item is included in nep-bec, nep-eec, nep-ent, nep-fdg, nep-ind and nep-sbm
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