26. Juli 2002 • Entry, Age and Sectoral Specialisation of Viennese Firms • Michael Peneder

This paper presents selected empirical facts pertaining to firm entries in Vienna. The research is based on data supplied by the "Kreditschutzverband von 1870" (KSV), which contains information regarding not only the age structure, but also sales and employment for a comprehensive sample of firms. Among the more general observations, the following four findings stand out:

• Industrial structure: Vienna is a central location for producer-oriented services. Nearly 30 percent of all Viennese firms registered by the KSV fall into this category; their share is more than 10 percentage points higher in Vienna than in the average throughout Austria. Significantly smaller in number are the Viennese firms engaged in manufacturing (a 7 percent share in Vienna, as compared to 12 percent for the rest of Austria). In Austria as a whole, as well as in Vienna, the greatest share of all firms (nearly 35 percent) is engaged in distributional services.

• Age structure: The age of firms in Vienna approximately corresponds to that in Austria as a whole. The median of the age distribution is 10 years. Firms in manufacturing (median year of entry 1981) are generally older than those in services (median year of entry 1991). Industries, which are strongly characterised by the use of intangible investments in research and marketing, by the skill levels of their human resources, and by the availability of specialised, knowledge-based services, consist to a great extent of younger firms.

When analysing the various factors which influence entry activity, we should consider the fact that the founding of a firm is the primary event for the economic unit in question. From information about the firm itself, it is neither possible to observe previous events nor to deduce causal effects. Available data, however, enable an investigation of selected aspects of the business environment and the influence of various structural factors on the probability of a new entry.

• Structure of new entries: The greatest contribution to the most recent wave of new entries is attributable to personal and social services, as well as to software intensive services. In both groups, the share of new entries since 1996 amounts to more than 30 percent of the entire stock of businesses in this sector. In a comparison of firms with respect to skill levels, the highest entry intensity was in industries demanding the lowest skill levels. It is also remarkable that the structural change in the direction of producer-oriented services is not taking place by means of market entries, but rather through a below-average number of exits.

• Determinants of the intensity of entry: The econometric estimations indicate that in addition to the sector, two other factors play a particularly important role in entry intensity: 1. the minimum efficient scale within an industry has a significantly negative effect (internal returns to scale); 2. in contrast, the extent of horizontal clustering exerts a high and significantly positive influence (external returns to scale). The significance of the individual factors varies, however, depending on the sector. For example, the positive external effects of horizontal clustering increase the probability of a new entry in producer-oriented services. New entries in these industries thereby profit in a particularly strong way from the density of similar producers in Vienna.

For further information, please refer to Mr. Michael Peneder, phone (1) 798 26 01, ext. 480.