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

Eshref Trushin and Mehmet Ugur ()

No 30335, Greenwich Papers in Political Economy from University of Greenwich, Greenwich Political Economy Research Centre

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.

Keywords: Company survival; rugged fitness landscape; firm heterogeneity; R&D; NK model (search for similar items in EconPapers)
Date: 2020-05-24
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Published in Economics of Innovation and New Technology 5.30(2020): pp. 494-515

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http://gala.gre.ac.uk/id/eprint/30335/1/30335%20UG ... y_%28AAM%29_2020.pdf

Related works:
Journal Article: Intra-industry firm heterogeneity, sub-optimal adaptation and exit hazard: a fitness landscape approach to firm survival and learning (2021)
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