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Exit or “Death” of Firms

In: Theory of Zipf's Law and Beyond

Author

Listed:
  • Alexander Saichev

    (Nizhni Novgorod State University)

  • Yannick Malevergne

    (University of Saint-Etienne
    Technology and Economics)

  • Didier Sornette

    (EMLYON Business School – Cefra)

Abstract

Many theoretical models neglect the possibility that firms disappear. However, firms do not continuously grow. They undergo transient periods of decay that are sometimes persistent and then surrender to their decline which may ultimately lead to their exit from business. Referring as in Chap. 2 to Bonaccorsi Di Patti and Dell’Ariccia (2004), the yearly rate of death of Italian firms is, on average, equal to 5.7% with a maximum of about 20% for some specific industry branches. Knaup (2005) examined the business survival characteristics of all establishments that started in the United States in the late 1990s when the boom of much of that decade was not yet showing signs of weakness, and found that, if 85% of firms survive more than one year, only 45% survive more than four years. Brixy and Grotz (2007) analyzed the factors that influence regional birth and survival rates of new firms for 74 West German regions over a 10-year period. They documented significant regional factors as well as variability in time: the 5-year survival rate fluctuates between 45% and 51% over the period from 1983 to 1992.

Suggested Citation

  • Alexander Saichev & Yannick Malevergne & Didier Sornette, 2010. "Exit or “Death” of Firms," Lecture Notes in Economics and Mathematical Systems, in: Theory of Zipf's Law and Beyond, chapter 0, pages 59-72, Springer.
    • Handle: RePEc:spr:lnechp:978-3-642-02946-2_5
    DOI: 10.1007/978-3-642-02946-2_5
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