Flexible or fragile? The growth performance of small and young businesses during the global financial crisis — Evidence from Germany

• We examine whether crisis times hamper or foster entrepreneurship.
• Our analysis is based on a rich dataset covering the German Mittelstand from 2003 to 2012.
• Small firms grow faster in stable and crisis times, indicating flexibility.
• Younger and more entrepreneurial firms show lower growth in crisis times.
• The opposite holds in normal times; hence crises are detrimental to entrepreneurship.

Do crisis times hamper or foster entrepreneurship? We analyze the relative growth performance of small and young firms within the German Mittelstand during the 2009 crisis. We find that small firms exhibit a relative growth advantage compared to larger firms in both stable and crisis times, and interpret this as a flexibility advantage of small size. By contrast, young firms, which show stronger growth in stable times, are disproportionately negatively affected by the crisis. A similar pattern holds for firms showing characteristics commonly associated with a more entrepreneurial attitude. Thus we conclude that crises are detrimental to entrepreneurship.