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Small Business Failure and External Risk Factors

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  • Everett, Jim
  • Watson, John
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    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 percent and 50 percent 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. Copyright 1998 by Kluwer Academic Publishers

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    Bibliographic Info

    Article provided by Springer in its journal Small Business Economics.

    Volume (Year): 11 (1998)
    Issue (Month): 4 (December)
    Pages: 371-90

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    Handle: RePEc:kap:sbusec:v:11:y:1998:i:4:p:371-90

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    Web page: http://www.springerlink.com/link.asp?id=100338

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    Cited by:
    1. Vos, Ed & Yeh, Andy Jia-Yuh & Carter, Sara & Tagg, Stephen, 2007. "The happy story of small business financing," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2648-2672, September.
    2. Metzger, Georg, 2006. "Once bitten, twice shy? The performance of entrepreneurial restarts," ZEW Discussion Papers 06-83, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    3. Marcus Box, 2008. "The death of firms: exploring the effects of environment and birth cohort on firm survival in Sweden," Small Business Economics, Springer, vol. 31(4), pages 379-393, December.
    4. Petrit Gashi & Iraj Hashi & Geoff Pugh, 2014. "Export behaviour of SMEs in transition countries," Small Business Economics, Springer, vol. 42(2), pages 407-435, February.
    5. H. Ooghe & S. De Prijcker, 2006. "Failure process and causes of company bankruptcy: a typology," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 06/388, Ghent University, Faculty of Economics and Business Administration.
    6. Nico Dewaelheyns & Cynthia Hulle, 2008. "Legal reform and aggregate small and micro business bankruptcy rates: evidence from the 1997 Belgian bankruptcy code," Small Business Economics, Springer, vol. 31(4), pages 409-424, December.
    7. Brian Headd, 2001. "Business Success: Factors Leading to Surviving and Closing Successfully," Working Papers 01-01, Center for Economic Studies, U.S. Census Bureau.
    8. Metzger, Georg, 2006. "Afterlife: Who Takes Heart for Restart?," ZEW Discussion Papers 06-38, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    9. Jackson André da Silva & Nério Amboni & Anacleto Ângelo Ortigara & Alexandre Marino Costa, 2014. "Business DNA: an Analysis of Micro and Small Companies in the State of Santa Catarina," Brazilian Business Review, Fucape Business School, vol. 11(2), pages 115-134, March.
    10. Schutjens, V. & Stam, F.C., 2006. "Starting Anew: Entrepreneurial Intentions and Realizations Subsequent to Business Closure," ERIM Report Series Research in Management ERS-2006-015-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
    11. Lili Sun, 2007. "A re-evaluation of auditors’ opinions versus statistical models in bankruptcy prediction," Review of Quantitative Finance and Accounting, Springer, vol. 28(1), pages 55-78, January.
    12. Becchetti, Leonardo & Sierra, Jaime, 2003. "Bankruptcy risk and productive efficiency in manufacturing firms," Journal of Banking & Finance, Elsevier, vol. 27(11), pages 2099-2120, November.
    13. Nobuyuki Harada, 2007. "Which Firms Exit and Why? An Analysis of Small Firm Exits in Japan," Small Business Economics, Springer, vol. 29(4), pages 401-414, December.
    14. Mramor, Dusan & Valentincic, Aljosa, 2003. "Forecasting the liquidity of very small private companies," Journal of Business Venturing, Elsevier, vol. 18(6), pages 745-771, November.
    15. World Bank, 2000. "South Africa - Constraints to Growth and Employment : Evidence of the Small, Medium and Micro Enterprise Firm Survey," World Bank Other Operational Studies 15414, The World Bank.
    16. Stefan Buehler & Christian Kaiser & Franz Jaeger, 2012. "The geographic determinants of bankruptcy: evidence from Switzerland," Small Business Economics, Springer, vol. 39(1), pages 231-251, July.
    17. Arnab Bhattacharjee & Chris Higson & Sean Holly & Paul Kattuman, 2007. "Macroeconomic Conditions and Business Exit: Determinants of Failures and Acquisitions of UK Firms," CDMA Working Paper Series 200713, Centre for Dynamic Macroeconomic Analysis.

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