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A Dynamic Model of Birth and Death of Enterprises in Germany
The main purpose of this paper is to estimate a model describing dynamics of the exit of firms and entry of new enterprises in Germany. The developed dynamic model, in contrast to other well-known methods of insolvency forecast, also allows to forecast the number of newly founded enterprises in the future. Besides this basic application, we also derive a theoretical model to describe the probability of an enterprise’s death depending on its age. Therefore, the conclusion is that dynamic mathematical models may be useful tools for the description of firm number fluctuation over time.
1 Introduction
Bankruptcy is the most essential threat faced by an enterprise. The risk of failure follows from various risks that are present in business activity. At the macroeconomic level, bankruptcy is a feature of a market economy and its role is to make the economic system more efficient by eliminating the companies that cannot properly adapt to the market conditions. In this context, one of the most important economic theories is Schumpeter’s theory of creative destruction. It is frequently cited in business demography (Schumpeter). The formation of new enterprises and bankruptcy of existing ones ...