The risk of death in newborn businesses during the first years in market

Abstract

In this paper, we analysed how business age and mortality are related during the first years of life, and tested the different hypotheses proposed in the literature. For that, we used data on US business establishments, with 1-year resolution in the range of age of 0-5 years, in the period 1978-2019, published by the US Census Bureau. First, we explored the adaptation of classical techniques of survival analysis (the life table and Peto-Turnbull methods) to business survival analysis. Then, we considered nine parametric probabilistic models, most of them well known in reliability analysis and in the actuarial literature, with different shapes of the hazard function, that we fitted by maximum-likelihood method and compared with the Akaike information criterion. Our findings show that newborn firms seem to have a decreasing failure rate with age during the first 5 years in market, with the exception of the first months of some years in which the risk can rise.