In a study released today titled “Entrepreneurs and Recessions: Do Downturns Matter?,” Kauffman Foundation Senior Fellow Paul S. Kedrosky presents findings from collecting and analyzing data to find out how economic conditions impact startup success.
"The answers are important because of the central role that entrepreneurial ventures play in our economy, from job creation, to innovation, to improvements in our overall standard of living and GDP," said Carl Schramm, president and CEO of the Kauffman Foundation. "This study shows that the relationship between company success and economic conditions at the time of a company’s founding is not well understood."
Researchers reviewed a comprehensive list of the 8,464 companies founded between 1831 and 2006 that have gone public on U.S. markets from 1975 to 2006. To create a data set for analysis, the study matched the nine economic recessions that occurred during the time period in question against the public company founding dates.
The study first looked at the number of companies by founding year that went public across each expansionary and recessionary economic period. At this macro level, the data showed seemingly little discriminate power in comparing companies in recessionary and non-recessionary periods. Kedrosky points out, however, that we can’t know how many companies were founded in those respective periods, which would help shed light on the death rate of companies founded during recessionary and non-recessionary periods.
The study then looked more closely at the number of companies from recessionary and non-recessionary periods in the post-1975 IPO data. Across all years, the results show that it is slightly more likely that a post-1975 IPO came from a non-recessionary period. The non-recessionary group’s productivity was 83 IPO companies per year, while the recession subset’s productivity was 70 companies per year making initial public offerings.
However, removing the Great Depression and WWII years, both of which have exceptional conditions, shows that 138 companies per year went public in expansion periods, and 140 in recession periods. These data therefore suggest that the likelihood of a company being part of the public IPO set post-1975 is unrelated to whether it came from a recessionary or non-recessionary period.