13th International Roundtable on Business Survey Frames
Paris ; 27 September-1 October 1999
Session No 3
Paper No 3
Giuseppe Garofalo and Caterina Viviano, ISTAT, Italy
Continuity rules: re-delineation in the Italian context
Abstract
The paper will deal with two main subjects related to the problems for the analysis of enterprise
demography in a Business Register context.
The first issue concerns the continuity rules delineation for enterprises. Starting from the Eurostat
methodological recommendations, in which practical criteria applicable for the treatment of continuity
are suggested, we will discuss the effective applicability of these rules to the Italian reality. In particular
the proposed rule according to which a fundamental change in two over the three characteristics (legal
unit, economic activity and geographic location) induces a case of discontinuity looks generic, given
the different complexity of the economic structure between countries. We will present more detailed
continuity criteria based on two factors: a) the peculiar productive structure of Italy, characterized by an
high number of individual micro-enterprises, in which a change in the production factor identified by the
'"owner" produces substantial changes to the related enterprise; b) different typologies of economic
activities, in particular with reference to those activities not extensible.
The second problem we will analyse is related to the treatment of structural changes (merger and
demerger) that characterise most of all demographic events affecting large enterprises. We will
describe the way we treat those processes inside the register on the base of a classification of events
and by analysing the connections existing between the "splitting " and the "taking-over" enterprises.
Some results show the informative potentiality of such an approach.
Key words: statistical business register, enterprise demography, continuity rule, structural change.
1.Introduction
In order to treat dynamics of units (entries, exits, structural changes) recorded in a Business Register it
is relevant to define a notion of continuity, that is the condition under which different units are deemed
to be the same over a given time period. An enterprise is recognised by a specific set of resources,
functions and products such as changes in their combinations allow to define continuity concepts and
some operational rules to produce statistics on enterprise demography.
The study of links and relationships between units over the time is an important issue both in a static
context, in presence of delays when updating characteristics (i.e. it is very common the delay with
which one can observe closures of activities), and for micro-economic research concerning dynamics.
Enterprise demography holds traditionally a main role in the competition and production theory, in the
entrepreneurship supply analysis, as tool of analysis in job creation and job turnover studies. Such
fields of applied research are affected by false flows of units (spurious demography) apparently
discontinuing, but being the same as matter of fact.
The continuity concept proposed by Struijs and Willeboords (1993) has been widely accepted at
international level. Eurostat suggests some practical criteria based on combinations of changes
occurring in some characteristics recorded in the Business registers
In this paper we re-consider in a critical way those rules in order to take into account the peculiarity of
the Italian context and the complexity and difference existing between the productive sectors. In
addition, we will face the problem on how to deal with structural changes (merger and demerger) inside
the BR, given the importance they take for the determination of demographic events interesting large
enterprises as well as concentration (the most of new large size enterprises is caused by birth from
merger or break-up).
2.The continuity concept and the criteria suggested by Eurostat
Within the study of enterprises population development it is relevant to identify whenever a change
happens whether it produces a discontinuity of the unit: an enterprise is considered to be continued if it
modifies without any significant change in its identity, that is in terms of its production factors. The
production factors include the set of means (employment, machines, raw material, capital
management, buildings) that the enterprise uses in its production process and leading to the output of
goods and services.
It is clear that measuring the continuity of all production factors and weighting them can be quite
difficult and costly. For those reasons Eurostat suggests, as a practical criterion, to use precise
variables available in the register that are correlated to the most important production factors for
identifying the enterprise: the basic hypothesis is that a change in such characteristics would stand for
a change in the production factors. The characteristics considered are:
 The controlling legal unit of the enterprise - The continuity of the management of the enterprise
may be assumed to be positively correlated with the continuity of the controlling legal unit. The
same may be assumed for some immaterial assets.
 The economic activities carried out - Continuity of the four-digit NACE Rev.1 code of the principal
activity may be assumed to be positively correlated with the continuity of the production factors,
especially employment, machines and equipment, land and buildings.
 The locations where the activities are carried out - The continuity of the locations where the
activities are carried out is of course closely linked to the continuity of the land and buildings used
by the enterprise.
The empirical rule suggested is that an enterprise is considered to be discontinued if at least two over
three modifications in the previous factors occur.
Continuity rules reflect a notion of identity based on the consideration that the enterprise is a set of
specific resources, procedures and relationships with the environment. In the suggested rules an
element of discontinuity is introduced when changes are “of great extent” and quick. Moreover, such
empirical rule has the advantage to be easily applicable to data recorded in a register. It rises some
reflections due both to its excessive simplicity1 and to its actual feasibility especially if referred to the
set of lower size enterprises.
3. Some remarks on the practical rules application
The Eurostat criteria seem to give the same weight to changes occurring in the 3 characteristics. The
first element to underline is that every change must be weighed and evaluated according to the
background in which it occurs - that is particular subsets of recorded units. For example it can be
shareable the consideration that a change of controlling legal unit is not sufficient by itself to determine
discontinuity: is this true at the same way for a small enterprise, managed by one-person, as for a
company or for a large size unit? Moreover with reference to the location, do modifications have the
same meaning for a multi-location or uni-location enterprise?
Given this general paradigm, for each characteristic some critical considerations are put forward so
that they will allow to redefine the empirical continuity rules afterwards.
1
Within the Eurostat recommendations some special cases are detected as regards to the continuity criteria, the location for
the multilocation enterprises and the economic activity when the activity itself changes from secondary to principal
2

Controlling legal unit
It is the most meaningful variable for the identification of discontinuity elements. In fact, from a
quantitative point of view, a change of legal form or owner happens more frequently during an
enterprise life cycle. The main elements on which new rules are defined are two:
1) for some domains of studies, such as birth and cessation of very small enterprises, it does not make
sense to separate the juridical subject (the entrepreneur) from the statistical subject (the enterprise): in
the one-person enterprise there exists an overlap between the entrepreneur and the enterprise. For
such cases a new controlling legal unit becomes the factor producing discontinuity even if it is the only
one to change among the others. On the other hand it is known that the larger part of the Italian
economic structure is represented by small and very small enterprises, most of which have a juridical
status of individual concerns: in some territorial (north-east and south-east) and sectorial frames
(textile industry, construction, retail trade and transport) a widespread entrepreneurship is the
economic structure characteristic. To treat as relevant a change of controlling legal unit just as an
administrative and juridical event and not as a real event, it means not to give the right weight (to level
out) to the enterprise demographic phenomena.
2) A strong discontinuity occurs even in presence of a change of controlling legal unit involving a
movement from any other legal form to a company one. In the latter case the new production factor
introduced (capital) is a discontinuation element in the enterprise organisation.

Economic activity
Even with reference to this characteristic some considerations have to be done. On one hand the
convention to consider any modification at 4 digit Nace Rev.1 as a discontinuity element seems to be
too general: there are activities consistent each others and a change is permitted. Sometimes changes
of products cause a shift in the economic activity classification even if the production process remains
unchanged. These kind of movements, derivable from ad hoc tables, do not imply any discontinuity.
This typology comprises also other changes that are shifts from a secondary activity to the principal.
On the other hand it is interesting to underline that sometimes the only change of economic activity
becomes the key factor of discontinuity especially if it occurs at subsection level of Nace.

Location
According to what the Eurostat recommendations suggest, if the activities move over a short distance
the probability that production factors remain the same is high. It may be noted that this concept is
strictly correlated to the kind of activity carried out and that the distance should be translated in terms
of an homogeneous territorial ambit.
In fact in sectors such as agriculture, mining or quarrying where production is closely related to the
place, any move, even of short distance, will result in a significant change in the production factors.
Whereas, for those activities characterised by a high degree of mobility on the territory (trade agents,
road haulage contractors) or when personal residence often corresponds to the place where activity is
carried out (free professionals), place is not so meaningful. For those cases either the location loses
identification power or rules have to be applied in a different manner in comparison to sectors like
manufacturing or retail trade.
Moreover, location is not enough significant if related to a multi-location unit or to very large size
enterprises; as well as it is particularly complex to geographically identify units in a global economy.
4. Continuity and discontinuity rules
Changes occurring in each of the 3 characteristics either can determine a simple change in the value
of the respective attribute or can contribute to indicate a modification for the enterprise identity.
The following tables show agreement /disagreement rules (classified as = /  ) between the entity
before and after an event and the correspondent values modifications. Continuity rules for enterprises
are then delineated as a combination of every single agreement/disagreement rule.

Controlling legal unit
3
The controlling legal unit is classified in 3 macro-typologies according to the legal form: individual or
family concerns ( I ), partnerships ( P ), companies ( C ).
Tab.1 - Controlling legal unit rules
Cod.
Typology of changes
Rule
A1
A2
A3
A4
A5
A6
From I to I
From I to P and IP
From I to P and IP
From I or P to C
From P to P
From C to C

=


=
=
Rules coded as A1 and A4 are founded on the previous considerations. Movements from I to P can be
distinguished into 2 types according to the fact that the person does belong (rule A2) or does not to the
new company as partner. In the first case there is probability of continuity because of the belief that
management (in terms of the same persons) will continue; otherwise when new partners enter it is
possible that a reorganization takes place and then a discontinuity is introduced.
Movements between legal forms within the same kind of companies P and C (A5 and A6) are
considered changes regarding just the legal unit.

Economic activity.
Tab.2 summarizes considerations explained before. Coherence between economic activity codes is
established according to an existing comparability table (rule B2).
Tab.2 - Economic activity rules
Cod.
Typology of changes
Rule
B1
B2
B3
B4
The new activity was a secondary activity
The new activity is consistent with the old one
The new activity differs at subsection level
The new activity differs at 4 digit Nace
=
=



Location
In the case of an enterprise carrying out its activities in more than one place the main location
corresponds to that local unit where business is organized, that is the headquarters of the enterprise as
that place where administrative offices are located.
The concept of location as place where activities are carried out has not the same meaning for all the
economic activities. We differentiate for sectors of Nace A,B,C, for those activities not dependent upon
a fixed physical location and the others. For the first group rule C1 states a discordance if address
changes; for the second group any move never causes discordance: this group includes those kinds of
activities not connected to a permanent place and those ones in the free professions where personal
abilities are strictly linked to the person practising wherever it stays2.
For the other activities the disagreement of location is established at “ labour local system”. A local
system is a socio-economic and geographic entity (not just administrative) that reveals a territory
including more than a municipality. Inside this entity economic activities are concentrated in a such
amount to offer job opportunities to most residents. A local system indicates a territorial capacity to
contain the most relationships set up between the working and resident place (self-containment
concept). As a consequence both employer and employee know in detail the labour market
2
Activities not dependent upon location are those classified by Nace Rev 1 in divisions: 45 (except for 45.5), 51.1, 55.5, 60,
74.7; then those activities one-person based in sectors: 63.3, 67, 74.1/2/3/4/6, 80, 85, 92.31/62/72, 93.05 .
4
boundaries. The national territory has been divided into 784 systems of which 12 defined as
metropolitan areas.
Tab. 3 - Location rules
Cod.
C1
C2
Uni/multi
location
Unilocation
Unilocation
C3
Unilocation
C4
Multilocation
Economic Activity
Typology of changes
A, B and C sectors
Change at address level
Not location dependent Change/no change
activity
Other activity
Change at labour local
system level
All
Change/no change
Rule

=

=
In conclusion a combined evaluation of changes occurring to each characteristic allows to delineate
continuity rules. The impact in terms of unit continuity depends both on the number and variables
which are changing. Starting from the single rules described, sometimes it is enough a change in only
one element to produce discontinuity (such cases are at least any change of controlling legal unit, of
location for sector A,B,C and of economic activity for movements among subsectors). In the following
table there is a summary of the final continuity/discontinuity rules.
Tab. 4 - Discontinuity rules
Controlling legal unit
Economic activity
Location
Rule

= or 
= or 
Discontinuity
=
=
=
=
 (B3)
 (B4)

=
 (C1)
 (C3)
=
=

Continuity
Discontinuity
Continuity
Discontinuity
Continuity
Discontinuity
5. Continuity rules and structural changes
Rules mentioned above have identified when and how events occurring to a population of units
determine changes in its production structure over a period. They have the function to distinguish
between spurious and actual events, the latter being important for explaining the real evolution of a
population of units.
For achieving international harmonization of statistics the European effort followed the direction to
delineate rules that each country could practice and apply in a simple manner. The re-definition we
have stated above allows to preserve the requested comparability because of the possibility to
aggregate. Such rules are easily and automatically applicable in presence of events occurring to a
single enterprise.
Conceptual and practical problems increase if rules have to be applied in events involving more than
one enterprises (case of merger and demerger); such events are called processes of structural
changes. For sure every single event produces a modification in the existence or in characteristics of
the enterprises involved; all these elements could be treated according to some rules as those already
defined if no information on the event is available. The complexity is given by the knowledge of the
links between units. A new dimension is introduced: it is possible to identify an event at the moment in
which one can link units that are separated. For example, in the case of a take-over or a split-off it is
not easy to establish whose production factors constitute the “larger part” of one of the enterprises
involved in that event. What the convention says, that the enterprise having the highest continuity of
employment will continue, cannot always be feasible.
Structural changes bring an informative value by themselves; they indicate that involved units found
some advantages either for becoming larger (to concentrate), in order to have a greater economic
5
weight on the market, or to deconcentrate some production processes, giving parts of activities to
smaller units that are more flexible on the market from an economic and a fiscal point of view.
Statistical analysis of structural changes becomes an important issue to verify some hypothesis such
as: concentration and deconcentration phenomena in the big industry, vertical integration inside the
manufacturing (like acquisition of activities in services or trade sectors).
Moreover, the most of enterprise demography for medium-large size enterprise is the result of events
as merger and demerger.
The 3 main statements (more complexity in defining a continuity rule, a proper informative value,
determinant of large size enterprise demography) lead to the following considerations:
1. an event of structural change causes discontinuity in the involved units: in particular demographic
events (birth and deaths) must be considered as real events and then taken into consideration;
however if continuity of controlling legal unit exists, rules as shown above have to be applied;
2. The structural changes events must be recorded separately from the demographic ones.
6. The treatment of structural changes in the Italy BR
In legal terms those events are part of structural changes of companies
mergers or 2) breaks-up.
(SC) and are either a)
Mergers enable two or more companies to join each other. Mergers may take place either by merger in
the strict sense (two companies, A and B, become a new company, C), or by merger through takeover
(whereby one company, A, is absorbed by another company, B, which existed before the merger taking
place). By merging, one company takes over the rights of another company which, legally and
economically, ceases activities completely.
Break-up is an operation whereby a company transfers all or part of its assets to another economic
operator. This may take place through assignment or splitting. Assignment takes place when the
company transferring its property receives in exchange shares or stock from the acquiring company. A
split takes place when the shares or stock of the acquiring company are received by the shareholders
of the company which has split. In the case of total transfer of property, through assignment, the
transferring company does not cease activities, at least from the legal point of view. When a company
splits, however, the split company ceases activities both in the legal and economic senses.
On the basis of the above and without making a distinction between merger and Break-up, business
structural change can be defined as a process which permits business to acquire (transfer) all or part
of (their own) activities of (to) another business. A SC is simple when only two units are involved (as is
the case when unit A merges with unit B or when break-up of an a of unit A takes place in favour of
unit B). Complex SC takes place when more than two units are involved. Complex SC can be
considered as a set of n elementary events which are associated with each single business which
transfers an activity and each single business which acquires one. For example, break-up of certain
activities of business A in favour of businesses B and C, may be seen as a set of two elementary
events which relate firstly A and B and secondly A and C.
Breakdown of a SC process into elementary events (it is obvious that each simple SC corresponds to a
single elementary event) permits statistical analysis of changes by sector and size which such
processes bring about with regard to the universe of businesses. Indeed, it is possible to work out
matrices of steps which identify the direction (to/from which sector of activity and which size class) of
each elementary event of transfer or acquisition: it is thus possible to interpret processes as events of
attraction/expulsion.
From what has been stated above, it follows that processing of SC in the ISTAT BR will be carried out
by drawing up a historical archive of structural changes where, for each business the following
information are stored:



date of event,
unit involved (in terms of identification code),
type of event.
6
The classification of the type of event is the following:
a)
b)
transfer of activity
a1) cessation by total transfer of activity
a2) modification by partial transfer of activity
acquisition of activity
b1) start-up by acquisition of activity
b2) modification by acquisition of activity.
The following tables, referring structural changes in 1996 and 1997, give examples for exploiting such
information at different level of analysis.
Tab. 5 - Structural changes (1996 -1997)
Total
Processes
- Simple
- Complex
Involved enterprises
Elementary events
1,299
1,037
172
2.733
1.528
of which:
in the same
group
158
136
22
361
204
Tab. 6 - Involved enterprises by typology of event
Typology of event
Transfer of activity
- cessation
- partial transfer
Acquisition of activity
- start-up
- acquisition
Total
Total
N.
1,447
918
529
1,286
391
895
2,733
%
52.9
63.4
36.6
47.1
30.4
69.6
100.0
of which:
in the same group
N.
%
200
55.4
153
76.5
47
23.5
161
44.6
22
13.7
139
87.3
361
100.0
7
Tab. 7 - Elementary events - changes between sectors
Transfer of activity
Industry
Industry
Construction
Trade
Business services
Total
850
7
51
48
956
Acquisition of activity
Construction
Trade
Business
services
7
48
35
0
6
46
0
10
223
5
10
182
58
281
233
Tab.8 - Elementary events - Direction of size change by
activity sector (%)
Activity sector
In the
In a bigger
In a
same size
class
smaller
class
class
Industry
Construction
Trade
Business services
Total
31.5
32.2
17.3
23.7
27.6
46.7
45.8
63.0
53.1
50.7
21.8
22.0
19.7
23.3
21.7
8
Total
940
59
284
245
1,528