Ecosystem complexity, firm learning and survival: UK evidence on intra-industry age and size diversity as exit hazards

Firm age or size diversity in an industry is taken for granted but its implications for industry evolution and firm survival have remained below the radars of empirical research. We address this knowledge gap by drawing on an interdisciplinary theoretical framework informed by theoretical biology, organizational ecology and industrial organisation. We hypothesize that firms in more diverse industries are more likely to exit as a result of rugged fitness distributions where a global fitness optimum is less likely to emerge. We also hypothesize that investment in research and development (R&D) may counterbalance the adverse effect of diversity on survival by enabling the firm to engage in active learning about its market and technology niches. Evidence from discrete-time hazard estimators and an unbalanced panel dataset of 35,136 R&D-active UK firms lend support to these hypotheses. The findings remain robust to: (i) a battery of sensitivity checks, including step-wise estimations, different diversity measures and various firm cohorts; (ii) control for frailty and for a wide range of firm, industry, and macroeconomic factors considered in the survival literature; and (iii) taking account of direct effects of age, size and R&D intensity.