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Post-Entry Struggle for Life and Pre-Exit Shadow of Death from a Financial Perspective

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  • Kim P. Huynh
  • Robert J. Petrunia

Abstract

The success or failure of small, young, and private firms depends highly on the evolution of their financial position. This paper considers the post-entry/pre-exit adjustment process of firms, with focus on financial (debt-to-asset ratio) and labor productivity dynamics. Empirically examining financial relationships has been difficult, due to a lack of data on small, young, and private firms. We find that the post-entry struggle for life results in highly productive entrants reducing their leverage. Pre-exit dynamics see firm growth and relative firm size fall, with rising leverage. Increasing leverage hints at a shadow of death . Selection and survivor effects contribute to post-entry dynamics, while turnover and transition effects contribute to pre-exit dynamics.

Suggested Citation

  • Kim P. Huynh & Robert J. Petrunia, 2016. "Post-Entry Struggle for Life and Pre-Exit Shadow of Death from a Financial Perspective," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 23(1), pages 1-18, February.
  • Handle: RePEc:taf:ijecbs:v:23:y:2016:i:1:p:1-18
    DOI: 10.1080/13571516.2015.1084153
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    File URL: http://hdl.handle.net/10.1080/13571516.2015.1084153
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    Cited by:

    1. Missaka Warusawitharana, 2012. "Profitability and the lifecycle of firms," Finance and Economics Discussion Series 2012-63, Board of Governors of the Federal Reserve System (U.S.).
    2. Daniel Fackler & Claus Schnabel & Joachim Wagner, 2014. "Lingering illness or sudden death? Pre-exit employment developments in German establishments," Industrial and Corporate Change, Oxford University Press, vol. 23(4), pages 1121-1140.

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