Why Do Rural Firms Live Longer?

For the first 13 years after entry, the hazard rate for firm exits is persistently higher forurban than rural firms. While differences in observed industry market, local marketand firm attributes explain some of the rural-urban gap in firm survival, rural firmsretain a survival advantage 25% greater than observationally equivalent urban firms.In competitive markets, the remaining survival advantage for rural firms must beattributable to unobserved factors that are known at the time of entry. One plausiblecandidate for such a factor is thinner markets for the capital of failed rural firms.The implied lower salvage value of rural firms suggests that firms sorting into ruralmarkets must have a higher probability of success in order to leave their expectedprofits equal to what they could earn in an urban market.[...]