The shadow of death: analysing the pre-exit productivity of Portuguese manufacturing firms

The pre-exiting productivity profile of mature firms relative to survivors is examined along with an evaluation of how productivity affects the probability of exit along various dimensions. An empirical approach, based on an unbalanced panel of Portuguese manufacturing firms covering a 10-year period, is used. The findings confirm that market selection forces low-productivity firms to exit, but there is also evidence that a sizeable portion of low-productivity firms do not shut down. Conversely, there is a non-negligible fraction of high-productivity firms that do actually close. Consistent with some key theoretical predictions, our analysis reveals that exiting firms have a falling productivity level over a number of years prior to exit. Finally, the results from the survival model show that both small firms and ones with low productivity are relatively much more likely to exit the market. Industry and macro-environment are also found to have a non-negligible role on the exit of mature firms.