Turmoil over the crisis: innovation capabilities and firm exit

This work investigates the relationship between the characteristics and survival probabilities of firms, distinguishing between "involuntary" firm exit and exit by merger and acquisition (M&A). More in detail, we study how, and to what extent, innovation capabilities, as proxied by patents and trademarks, are able to shape, together with standard performance variables, the observed dynamics at the firm level. By using comprehensive data on Italian firms from business registers, we separate the administrative procedures leading to "involuntary" exit from those ending up with an event of M&A. We find that while higher productivity is associated with a lower probability of "involuntary" exit, productivity increases the chances of being the target for M&A. As far as intellectual property instruments are concerned, they tend to reduce the probability of both "involuntary" exit and M&A. However, the relative importance of the two instruments differs according to the exit route: patents are more relevant than trademarks in preventing "involuntary" exit, while the opposite is true for M&A. Plain English Summary We investigate firm's exit after a crisis. Overall innovation plays a positive role, but the relative importance of IP depends on the exit route: patents are more relevant than trademarks against "involuntary" exit, while the opposite is true for M&A. We resort to the virtual universe of Italian limited liability firms from manufacturing, trade, and service to investigate the determinants of firm survival over the period 2010-2014. We scrutinize detailed administrative data on significant events occurring to firms to distinguish between events leading to involuntary exit and to M&A. In addition to the evidence on innovation, our results show that higher productivity decreases the probability of "involuntary" exit, yet productivity increases the chances of being the target for M&A. Taken together, these findings warn against a simplistic perspective on exit: the role of innovation and firm characteristics heavily depends on the exit route.