Which Firms Exit and Why? An Analysis of Small Firm Exits in Japan

Abstract

The objective of this paper is to investigate exit behaviour of small firms, using data from The Survey on the Retirement of Small Firm Managers, which provides detailed information on exit and post-exit behaviour of small firms and their managers. The survey shows that small-firm exits occur not only because of economic difficulties ('Economic-Forced Exit'), but also for various other important reasons ('Non-Economic-Forced Exit'). We estimate probit models to examine differences between these two exit classes, and it is shown that the probability of economic-forced exit is significantly higher if the manager is relatively young, male, if the firm has borrowings from a financial institution, and if its sales tend to decrease. It is also shown that many managers recommence work as managers or as employees after exit. The proportion of managers who work after exit, especially as employees, is higher in the case of economic-forced exit than for non-economic-forced exit. These results indicate the potential importance of distinguishing between these two types of exits in exit studies.

Predicting new venture survival and growth: Does the fog lift?

“…By the latter we mean those firms that cease to trade with some external financial liability. Of course, as noted earlier, a closing firm may, or may not, have met the objectives of its owner(s), although closure may equally reflect that a better opportunity has presented itself to the business owner(s) (Headd 2003;Harada 2007). Finally, cases of entrepreneurial exit (but business continuation) such as an initial public offering (IPO), merger or acquisition (M&A) or trade sale will not have a confounding effect on our measurement of business exit (Wennberg et al 2010;Coad 2014), because if the firm continues operations with the same bank account, it will be treated in our dataset as a continuing firm, whereas if it switches its bank account to a different bank, it will be treated in our dataset as a 'switcher' and dropped prior to analysis.…”

A change in the importance of mortality factors throughout the life cycle stages of small businesses

“…The strong links, representing contacts with friends and relatives are more important during the decision of starting-up the business than during the performance after operations begun (Vale and De O Guimarães 2010). Thus, weak links are more important for the small business' survival than strong links are, although the family also helps providing (Chung, 2009;Galbraith, 1982;Greiner 1998;Harada, 2007) (Helfat and Peteraf 2003). Managerial knowledge becomes increasingly more important throughout the OLC and gains the highest relevance during the survival stage (2), mainly because the ownermanager needs to decide between increasing the business size or keeping it at its current size.…”

“…Chung (2009) and Harada (2007) shows the problems that Japanese SBs are facing due to the need for a better managerial behaviour of owner-manager and more capacity for adaptation to environmental changes. Therefore, this paper shows the mortality factors surveyed in the business management literature organized into three categories, according to the second classification mentioned above: owner-manager, business and environment.…”

Insolvency of Small Civil Engineering Firms: Critical Strategic Factors

“…Table 1 presents the demographics of the respondents and the firms. Since insolvent firms are virtually impossible to trace because of their non-functioning-anymore contacts (Everett and Watson 1998;Stokes and Blackburn 2002;Harada 2007), the interviews/stories from this research will supply a unique resource.…”

“…The difficulty of locating and subsequently getting access to owners of failed firms is well acknowledged in the research world (Stokes and Blackburn 2002;Harada 2007) hence the qualitative method in this study, which will be executed using storytelling, provides a unique resource. The scope of this work is limited to factors affecting small and micro civil engineering firms only; medium and large firms will not be considered.…”