Empirical Validity of Density Dependence Hypothesis: Unobserved Heterogeneity and Failure Rates

Abstract

This study examined whether strong support for density dependence

hypothesis in previous studies was due to unobserved inter-firm

heterogeneity Using the population of Dutch accounting firms, we

compared two model's one without firm heterogeneity variables and the

other with those variables Firm heterogeneity vanables examined here

included the adoption of a partner-associate structure, firm slze, the

number of domestic offices, firm-level human and social capital,

founding type, and organizational changes. Results indicated that

regardless of the inclusion of firm heterogeneity variables, density had a

strong U-shaped relation mth failure rates as predicted by density

dependence hypothesis Implications and future research directions

were discussed.