List of members:
Topics: empirical studies on firm behavior and government regulation, consumer and firm behavior, competition and pricing, firm survival, duration analysis, asymmetric information, contract theory, auction theory
Kovac, D., Vukovic, V., and Kleut, N. (2015) “Duration analysis of Croatian companies throughout the crisis” AEA Working paper
When companies are faced with an upcoming, expected economic shock, some of them tend to react better than others. They stack up on investments and weather the storm successfully, while others, even though they possess the same information set, fail to adapt the same business strategy and eventually fail to survive the crisis. We used a unique dataset consisting of 144,000 firms in Croatia, first to perform a pioneering duration analysis of Croatian companies during the crisis, and then to test whether investment prior the anticipated shock makes firms more enduring in surviving the recession. The results show that it is highly size dependent due to the financial borrowing constraint that allows firms to diversify the risk of investment when faced with a negative shock. This claim is supported by both non-parametric and parametric tests in the survival analysis. Also, we are able to pinpoint the cutoff value in size of a firm where the probability of surviving the recession conditional on investment increases, which is a noteworthy finding from a policy perspective.