E: m.anyadike-danes@aston.ac.ukW: enterpriseresearch.ac.uk

Enterprise Research CentreAnnual Research ConferenceAston, February 2015

All grown up? The fate after 15 yearsof the quarter of a million UK firms born in 1998

Michael Anyadike-Danes & Mark HartAston Business School and Enterprise Research Centre

the agenda• the field• data sources and construction• getting to know cohort98• survival• birth to age 15 by size-band• year-to-year mobility by size-band• growth trajectories and their slope• what have we learned?

the field: firm growth

from recent surveys of the firm growth literature:"Even though there has been sustained interest in growthfor almost 50 years, relatively little is known about thisphenomenon and much misunderstanding and confusionsurrounds it." Leitch et al Entrepreneurship Theory &Practice, 2010

and,"We wrap up by .. arguing in favour of [a] ... researchstrategy, which emphasizes the need for solid empiricalwork to first produce the ’stylized facts’ that theory canthen attempt to explain. At this stage, we consider thatresearch into the growth of firms could benefit greatlyfrom gathering of statistical regularities and ’stylizedfacts’." Coad, The Growth of Firms, 2009

data sources & construction

1. sourcesI Inter-Departmental Business Register

(IDBR) is a ’live’ register updated for jobsfrom HMRC (VAT and PAYE) and Business RegisterEmployment Survey

I the BSD comprises extracts from ’snapshots’ of the IDBRtaken each March (1997 to 2013)

2. constructionI focus on firm and job dynamics with firms linked year-to-year

by IDI appearance of first job ≡ birth of firmI dis-appearance of last job ≡ death of firmI private sector (defined by industrial activity)I focus here: cohort of private sector firms born in 1998

getting to know cohort98

cohort98, firms and jobs summary, birth to age 15

birth survivors age 15 summary statisticsat birth

firms ’000 239.6 26.2 26.2 survival ratio (%) 10.9jobs ’000 1123.7 163.4 394.9 net job creation ’000 231.5jobs/firm 4.69 6.25 15.09 growth ratio 2.41

Notes:1. ’survival ratio’ is the ratio of firm numbers at age 15 to firm numbersat birth2. ’net job creation’ is the cohort jobs at age 15 less survivor jobs at birth3. ’growth ratio’ is the ratio of jobs/firm at age 15 to jobs/firm insurvivors at birth

cohort98: jobs and firms, birth to age 15 (log scale)

(a) cohort98 jobs, all and age 15 survivors, and all firms ('000) (log scale)

year

jobs

and

firm

s (t

h) (

log

scal

e)

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

20

55

150

400

1100

jobsjobs survfirms

(b) cohort98 jobs/firm, all and age 15 survivors (log scale)

jobs

/firm

(lo

g sc

ale)

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

1

2.5

7.5

20

55

jobs/firmjobs/firm surv

cohort98:firm size distribution, birth and age 15,

shares by size-band,(%)

all at birth surv at birth surv at age 15

shar

es b

y si

ze−

band

%

020

4060

8010

0

from the bottom: 1–4; 5–9; 10-19; 20+

survival

cohort98:hazard ratios by age and size-band(a) hazard ratios by age, size at birth

years since birth

haza

rd, r

atio

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35 1−4 5−9 10−19 20+

(b) hazard ratios by current size

years since birth

haza

rd, r

atio

1 2 3 4 5 6 7 8 9 10 12 14

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35 1−4 5−9 10−19 20+

at age

haza

rd r

atio

s

birth to age 15 by size-band

cohort98 age 15 survivors, Origin/Destination matrixsize-band at birth (rows) vs size-band age 15 (columns)

1–4 5–9 10–19 20+ all(a)firms1-4 15011 3973 1997 1248 222295-9 721 642 489 407 225910-19 196 180 226 334 93620+ 84 55 91 508 738all 16012 4850 2803 2497 26162(b) shares of all (%)1-4 57.4 15.2 7.6 4.8 85.05-9 2.8 2.5 1.9 1.6 8.610-19 0.7 0.7 0.9 1.3 3.620+ 0.3 0.2 0.3 1.9 2.8all 61.2 18.5 10.7 9.5 100.0

cohort98 age 15 survivors, Origin/Destination matrixnet job creation (’000) & growth ratio (age15 ÷ birth)by size-band at birth (rows) vs size-band age 15 (columns)

1–4 5–9 10–19 20+ all(a) net job creation (’000)1-4 6.5 18.6 22.7 91.6 139.35-9 -2.8 0.3 3.0 23.4 24.310-19 -2.1 -1.0 0.2 30.5 27.720+ -5.8 -1.8 -6.8 54.4 40.1all -4.2 16.1 19.6 199.9 231.5(b) growth ratio (jobs/firm)

1–4 5–9 10–19 20+ all1-4 1.29 3.54 6.93 38.43 4.855-9 0.38 1.07 2.06 9.71 2.6910-19 0.17 0.57 1.08 7.75 3.2720+ 0.02 0.18 0.17 1.64 1.40all 0.88 2.02 2.09 3.12 2.41

year-to-year mobility

cohort98 survivors to age 15: year-to-year-size-band mobilityt(

data

[1, 3

:17]

)(a) no change

0.6

0.7

0.8

0.9

1

aa bb cc dd

t(da

ta[5

, 3:1

7])

(b) change up

0

0.1

0.2

0.3

0.4 ab bc cd

t(da

ta[1

1, 3

:17]

)

(c) change down

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

0

0.1

0.2

0.3

0.4 ba ca cb da dc

at age

prop

ortio

ns

growth trajectories

cohort98 survivors to age 15: trajectoriesby size-band at birth (average jobs/firm log scale) loess fit

age

jobs

(log

scal

e) 3

7

20

55

a: 1−4

0 5 10 15

b: 5−9

0 5 10 15

c: 10−19

3

7

20

55

d: 20+

a: 1−4 b: 5−9 c: 10−19 d: 20+

cohort98 survivors to age 15: slopes of trajectoriesby size-band at birth (growth in jobs/firm %)

age

job

grow

th (

%) 0

2040

60

a: 1−4

5 10 15

−40

−20

020

40

b: 5−9

−40

−20

020

40

5 10 15

c: 10−19

−80

−60

−40

−20

0

d: 20+

a: 1−4 b: 5−9 c: 10−19 d: 20+

what have we learned?

what have we learned?(1)

• cohort98 was born with about 250 thousand firms and1 million jobs, by age 15, 90% of firms were dead and jobsdown to 400 thousand

• survivalI the chance of death fell from around 25% at age 2 to less than

10% at age 15I firms larger at birth have a better chance of survivingI by age 15 firms that grew out of the smallest size-band had

half the chance of dying compared to that of firms which didnot grow out of the smallest size-band

what have we learned?(2)

• birth to age 15 by size-bandI 85% of age 15 survivors were born 1 – 4, by age 15 67% still 1

– 4I just 1248 grow from 1 –4 to 20+ (6% of 1 –4), but these are

half of all 20+ at age 15I 20+ at age 15 account for 85% of net job creation, and those

born 1–4 about half the 20+ contributionI average jobs/firm expanded from 6 at birth to 15 by age 15, a

factor of 2.5I growth in jobs/firm is inversely related to size-band at birth,

with those born 1 – 4 expanding at twice the average rate

what have we learned?(3)

• year-to-year mobility by size-bandI each year 80% to 90% of firms remain in the same size-bandI most movement up or down is just one size-bandI after age 5 about 10% move up and 10% move down each year

• growth trajectories and their slopeI trajectories connecting a size-band at birth to a size-band at

age 15 are generally monotonic but their slopes varyconsiderably

I slopes of trajectory show most change up to age 5 – steepestexpansion/contraction

I size-bands shrinking to 1–4 seem to display ’quadratic’ slope:is this how firms die?

I slopes of size-bands going to mid-size (5–9 and 10–19)stabilise after age 5

I some evidence of ’disturbance’ around age 11–13 especiallyfirms heading to 20+ : 2009 – 2011 (’great recession’?)

The statistical data used here is from the Office of NationalStatistics (ONS) and is Crown copyright and reproduced with thepermission of the controller of HMSO and Queen’s Printer forScotland.The use of the ONS statistical data in this work does notimply the endorsement of the ONS in relation to the interpretationor analysis of the statistical data.