Robert J. Kauffman and Bin Wang

[Full Paper in pdf]

We have witnessed a consolidation in the Internet sector since the beginning of 2000. In this research, we examine the drivers of Internet firm survival and exit. Using a data set of 130 publicly-traded Internet firms, we test an explanatory model of Internet firm duration after their initial public offerings (IPOs) using a Cox proportional hazards model and a semiparametric Bayesian survival analysis. The empirical model shows that market, firm and e-commerce-related variables, such as the entry of additional Internet firms via IPOs, a smaller firm size, good IPO timing, being a late entrant, and the selling of digital products or services, can reduce an Internet firm’s likelihood of exit. In addition, Internet firms that operate in breakthrough markets are more likely to survive than those that operate in re-formed markets. The empirical results also suggest that the impact of the explanatory variables on different exit types, such as bankruptcy, acquisition, and merger are different. The results demonstrate a high level of consistency across the econometrics methods used and illustrate the validity of Bayesian analysis as a technique for analyzing drivers of Internet firm survival.

KEYWORDS: Bayesian analysis, duration modeling, econometric analysis, electronic commerce, empirical methods, Internet firms, morphing strategies, survival analysis.