Max Planck Institute of Economics

Age matters – Investigating the Exponential Age Distribution of Firms

The Japanese construction firm Kongō Gumi, founded in 578 AD, was for a long time the world’s oldest firm, and survived for more than 1400 years until it went into liquidation in 2006. But what about other firms? What ages can they be expected to reach? Or: How many of the existing firms in an economy will survive the next 10, 30 or 50 years? Although data on age is not always easy to obtain, Alex Coad, researcher at the Max Planck Institute of Economics in Jena, investigated a number of databases and suggests that the empirical age distribution is well approximated by an exponential distribution. In other words, over most of the age distribution, the probability of a firm surviving to the next year is constant from one year to the next. The probability of a firm surviving unto age 100 or even 1000 is therefore very rare, but not impossible.

In contrast to the size distribution, the age distribution has barely been investingated. Alex Coad suggests that the age structure of firms of interest for several reasons. It is a concise indicator of accumulated entry, survival and exit rates in an economy. It therefore indicates the proportion of young firms in an economy. It can also shed light on organizational structures and technologies used in firms. This is of interest because founding conditions have long-term effects on firm's behaviour, corporate culture and performance. A better understanding of the age distribution also helps evaluate selection bias in previous work on samples of small firms, and it might be helpful in international comparisons of industrial structure. (Article)
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Schumpeter Prize 2010 – Best Junior Paper Award

Alex Coad and Christina Guenther, members of the Evolutionary Economics Group, won the Best Junior Paper Award at Schumpeter Conference 2010 at Aalborg, Denmark, June 21-24. A. Coad was awarded for his paper "Investigating the Exponential Age Distribution of Firms" (Press Release, Journal Article). Christina Guenther won the prize for her study "Pioneer Burnout: Radical Product Innovation and Firm Capabilities".

4th Summer School of IMPRS Uncertainty and GK-EIC

The 4th IMPRS Uncertainty and GK "The Economics of Innovative Change" Summer School starts: on July, 25th. Prof. Uwe Cantner, FSU Jena, welcomes young economists, psychologists, and law researchers in Jena. The opening lecture will be held by Giovanni Dosi from Sant’ Anna School of Advanced Studies in Pisa, one of the leading figures in evolutionary economics worldwide. Until August, 20th, the participants will work in several intensive courses and an individual research project. Activities as a trip to the Transparent Manufacture in Dresden or to the Erfurt will complete the program.