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Diehard or delicate? Violence and young firm performance in a developing country

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  • Ummad Mazhar

    (Lahore University of Management Sciences (LUMS))

  • Fahd Rehman

    (Lahore University of Management Sciences (LUMS))

Abstract

The genesis and survival of new businesses is an important determinant of entrepreneurial dynamism. With the recent surge in security challenges, the issue of young firms’ resilience has surfaced. How do changes in external risks affect firms of different ages? Using Enterprise Surveys, we construct a unique data set of more than 2000 firms locating across Pakistan. The information is used to estimate the link between firms’ employment growth and alternative measures of political violence at the provincial level. The key estimates suggest that the youngest firms in our sample experience 45% lesser growth in employment each year when terrorism escalates at its average rate. The growth cut is 31% for old firms. These findings are not conditional on firm size or the way political violence is measured. A battery of statistical tests, including an instrumental variables estimator, validates the inference.

Suggested Citation

  • Ummad Mazhar & Fahd Rehman, 2019. "Diehard or delicate? Violence and young firm performance in a developing country," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 54(4), pages 236-247, October.
    • Handle: RePEc:pal:buseco:v:54:y:2019:i:4:d:10.1057_s11369-019-00137-4
    DOI: 10.1057/s11369-019-00137-4
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    More about this item

    Keywords

    Firm age; Firm performance; Political violence; Terrorism; Pakistan;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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