Knowledge,profitability and exit of German car manufacturing firms

In this paper, the profitability of German car manufacturing firms is related to different indicators for the knowledge incorporated in the firms since the birth of the industry in 1886. The analysis is performed with an ordered probit model, where information about the mode of exit of the firms is exploited to construct a latent variable for profitability. Knowledge is represented by the number of patents, learning-by-doing and entrepreneurial experience before entry. The results show that knowledge is significantly positively related to firm profitability and that each of the three knowledge forms exerts an independent effect.