The life duration of small firms born within a start-up programme: Evidence from Italy

We argue in this paper that the success of a subsidy programme should not be evaluated by comparing the survival rates of subsidized and non subsidized firms, since the purpose of subsidies is to offset a gap with firms that do not need subsidies. Secondly, we seek to identify the main factors affecting the death probability of small firms born within a start-up programme. To this end, we conduct an empirical investigation of the firms supported by Law 44 in Italy between 1988 and 1997, finding that the amount of capital invested has a negative impact on life duration, while the capital/labour ratio and the amount of subsidy exert a positive influence. The main result is the unusual, negative relationship between size and survival, which we interpret in terms of the bias induced by subsidies in favour of larger and riskier firms.