New Trends in Small Business under Endogenous Initial Financial Conditions. Simulated Likelihood Approach

Abstract

In this paper we examine the dynamics of the new small firms. The survey SINE 98, performed by INSEE (France), provides information on the new firms emerged during the first six months of 1998 and their evolution during the following five years. The principal initial characteristics such as initial capital, bank credit and public aids are likely to be endogenous with respect to post-entry performance of new enterprises. Therefore, we have estimated two joint dynamics models, namely a model of employment dynamics and a lognormal survival model. These models were estimated using contemporary simulation-based techniques. We find that both financial and human capitals are the main factors that condition firm post-entry performance. Our findings indicate that the public subsidies and tax exemptions have a significant impact not only on the firm dynamics but also on the initial capital and on the bank loan provision. This result acquires a particular importance while designing the public assistance programs for the new enterprises, since the initial size of a start-up is a key factor of its post-entry performance.