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Understanding The Business Failure Rate

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  • SARAH J. LANE
  • MARTHA SCHARY

Abstract

The rate of business failures is widely quoted but is little understood. This study reviews the availability and usefulness of data on business failures and discusses the major determinants of fluctuations in the business failure rate. It shows that the age distribution of the population of firms is the largest determinant of failures and that the rate of failure has only a small countercyclical fluctuation. The study documents a substantial decline in the rate of failures between 1962 and 1979 and a smaller increase after 1980. The evidence presented suggests that the long decline is caused by the fall in failure rates in certain states and that part of the increase during the 1980s is due to changes in Dun & Bradstreet's data collection procedures.

Suggested Citation

  • Sarah J. Lane & Martha Schary, 1991. "Understanding The Business Failure Rate," Contemporary Economic Policy, Western Economic Association International, vol. 9(4), pages 93-105, October.
    • Handle: RePEc:bla:coecpo:v:9:y:1991:i:4:p:93-105
    DOI: 10.1111/j.1465-7287.1991.tb00353.x
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    References listed on IDEAS

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    1. Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1988. "Patterns of Firm Entry and Exit in U.S. Manufacturing Industries," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 495-515, Winter.
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    Cited by:

    1. Alfred R Nucci, 1996. "Business Failure In The 1992 Establishment Universe Sources Of Population Heterogeneity," Working Papers 96-13, Center for Economic Studies, U.S. Census Bureau.
    2. Brixy, Udo & Grotz, Reinhold, 2006. "Regional patterns and determinants of new firm formation and survival in western Germany," IAB-Discussion Paper 200605, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    3. Kapadia, Nishad, 2011. "Tracking down distress risk," Journal of Financial Economics, Elsevier, vol. 102(1), pages 167-182, October.
    4. Lillian Cheung & Amnon Levy, 1998. "An integrative analysis of business bankruptcy in Australia," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 22(2), pages 149-167, June.
    5. 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.
    6. James Love, 1996. "The determinants of variations in exit rates," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 23(1), pages 107-118, February.
    7. Stefan Buehler & Christian Kaiser & Franz Jaeger, 2007. "On the Geographic and Cultural Determinants of Bankruptcy," SOI - Working Papers 0701, Socioeconomic Institute - University of Zurich, revised Jun 2007.

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