Small Business Failure and External Risk Factors

Small Business Failure and External Risk Factors Unlike much of the previous literature, which has generally focused on internal risk factors, this study seeks to explore the impact of macro-economic factors on small business mortality. The results suggest that economic factors appear to be associated with between 30% and 50% of small business failures, depending on the definition of failure used. As expected, failure rates were positively associated with interest rates (where failure was defined as bankruptcy) and the rate of unemployment (where failure was defined as discontinuance of ownership). However, somewhat unexpectedly, failure rates were found to be positively associated with lagged employment rates (where failure was defined as to prevent further losses) and with current and lagged retail sales (where failure was defined as either: failed to "make a go of it"; discontinuance of ownership; or discontinuance of business). This indicates that a strengthening economy may provide the trigger for an increase in voluntary business exits as individual proprietors seek to maximize the returns available to them on both their financial and human capital. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Small Business Economics Springer Journals

Small Business Failure and External Risk Factors

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 1998 by Kluwer Academic Publishers
Subject
Business and Management; Management; Microeconomics; Entrepreneurship; Industrial Organization
ISSN
0921-898X
eISSN
1573-0913
D.O.I.
10.1023/A:1008065527282
Publisher site
See Article on Publisher Site

Abstract

Unlike much of the previous literature, which has generally focused on internal risk factors, this study seeks to explore the impact of macro-economic factors on small business mortality. The results suggest that economic factors appear to be associated with between 30% and 50% of small business failures, depending on the definition of failure used. As expected, failure rates were positively associated with interest rates (where failure was defined as bankruptcy) and the rate of unemployment (where failure was defined as discontinuance of ownership). However, somewhat unexpectedly, failure rates were found to be positively associated with lagged employment rates (where failure was defined as to prevent further losses) and with current and lagged retail sales (where failure was defined as either: failed to "make a go of it"; discontinuance of ownership; or discontinuance of business). This indicates that a strengthening economy may provide the trigger for an increase in voluntary business exits as individual proprietors seek to maximize the returns available to them on both their financial and human capital.

Journal

Small Business EconomicsSpringer Journals

Published: Oct 6, 2004

References

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