Organizational Demography

The population of KMFs at any point in time depends on past rates of KMF creation and destruction. It also depends on past rates at which KMFs have been converted into LMFs, and vice versa. Given the small population of LMFs, the latter effects are negligible relative to the stock of KMFs. The number of LMFs at any point in time also depends on past rates of creation and destruction as well as past rates at which KMFs have become LMFs, and vice versa. However, transitions between the KMF and LMF structures play a non-trivial role in determining how many LMFs there are at a point in time, because such flows are significant relative to the overall population of LMFs. Understanding these processes is therefore an important objective in explaining why LMFs remain rare.

Section 10.2 begins with birth rates of new firms and considers why there might be a systematic bias favoring the KMF structure at this stage. Section 10.3 addresses worker buyouts of KMFs, and Sections 10.4 and 10.5 take up the opposite process, the conversion of LMFs into KMFs. I discuss the evidence concerning survival rates of LMFs and KMFs in Section 10.6. Section 10.7 takes a brief look at the effects of the business cycle on the LMF population, and Section 10.8 examines the tendency of LMFs to cluster in particular industries, geographical regions, and historical eras.