PUBLICATIONS & REPORTS

Contents Introduction

The main purpose of the paper is to investigate the firm survival in Indonesia from 2003 to 2004. In particular we investigate factors beyond firm death. In the literature of firm survival, the death is defined as firms that are no longer in the ‘list’, which in the Indonesian context it means no longer in the BPS (Central Statistical Agency) manufacturing directory. But we found that the death firms may not necessarily die after all. In the context of the perceived worsening business climate in Indonesia some firms may choose to become less visible or less formal to avoid harassment from tax officials, to escape from labor regulation, and to avoid paying local tax and levies which become common after decentralization. In the subsequent round of the BPS manufacturing survey, firms whose size fall below 20 workers would likely disappear from the BPS list. Other firms choose less extreme strategy to undergo downsizing. For the central and local governments; point of view this could mean the loss of potential tax revenues. We estimate a probabilistic model where the firm likelihood of becoming smaller status is influenced by firm characteristics, district level variables like bureaucratic harassment, bribery, and the horizon of the local bureaucrats.