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How Did Young Firms Fare during the Great Recession?

How Did Young Firms Fare during the Great Recession?

Evidence from the Kauffman Firm Survey

Chapter:
(p.253) 6 How Did Young Firms Fare during the Great Recession?
Source:
Measuring Entrepreneurial Businesses
Author(s):
Rebecca ZarutskieTiantian Yang
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226454108.003.0007

We examine the evolution of several key firm-level economic and financial variables in the years surrounding and during the Great Recession using the Kauffman Firm Survey, a large panel of young firms founded in 2004 and surveyed for eight consecutive years. We find that these young firms experienced slower growth in revenues, employment, and assets and faced tighter financing conditions during the recessionary years. While we find some evidence that firm growth picked up following the recession, it is not clear that it returned to the levels it would have been absent the recessionary shock. We find little evidence that financing conditions for young firms loosened following the recession and show that financing constraints, in addition to diminished demand, may have contributed to these firms’ slower growth. We discuss the strengths and the limitations of the Kauffman Firm Survey in measuring the impact of the Great Recession on young firms and consider features of future data collection and measurement efforts that would be useful in studying entrepreneurial activity over the business cycle.

Keywords:   Great Recession, new businesses, financial constraints, firm growth, firm employment

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