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Firm Closure, Financial Losses and the Consequences for an Entrepreneurial Restart

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  • Metzger, Georg

Abstract

Many entrepreneurs who close a business are actually willing to venture anew. However, to realize a restart is not only a matter of willingness on the part of the entrepreneur but also of its feasibility. Regarding the feasibility of a restart, the aspect of capital acquisition might be particularly precarious for renascent entrepreneurs since business closures are likely to come up with financial losses. Financial losses arising from business closure can befall various stakeholders : shareholders, banks and public institutions, or suppliers and other stakeholders. The major finding of this analysis is that financial losses due to business closure strongly influence the likelihood of entrepreneurial restart - yet only when losses are incurred by banks. Losses which are incurred privately by the entrepreneurs or by other stakeholders do not influence the restart likelihood. Entrepreneurs who would seek to continue their entrepreneurial career after a business closure would be well advised to avoid causing losses at banks.

Suggested Citation

  • Metzger, Georg, 2008. "Firm Closure, Financial Losses and the Consequences for an Entrepreneurial Restart," ZEW Discussion Papers 08-094, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    • Handle: RePEc:zbw:zewdip:7436
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    References listed on IDEAS

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    1. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-670, May.
    2. Ronstadt, Robert, 1986. "Exit, stage left why entrepreneurs end their entrepreneurial careers before retirement," Journal of Business Venturing, Elsevier, vol. 1(3), pages 323-338.
    3. Erik Stam & David Audretsch & Joris Meijaard, 2008. "Renascent entrepreneurship," Journal of Evolutionary Economics, Springer, vol. 18(3), pages 493-507, August.
      • Stam, F.C. & Audretsch, D.B. & Meijaard, J., 2006. "Renascent Entrepreneurship," ERIM Report Series Research in Management ERS-2006-017-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 University Rotterdam.
    4. Metzger, Georg, 2006. "Once bitten, twice shy? The performance of entrepreneurial restarts," ZEW Discussion Papers 06-083, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    5. Deniz Ucbasaran & Paul Westhead & Mike Wright, 2006. "Habitual Entrepreneurs," Books, Edward Elgar Publishing, number 3737.
    6. Eric Van den Steen, 2004. "Rational Overoptimism (and Other Biases)," American Economic Review, American Economic Association, vol. 94(4), pages 1141-1151, September.
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    Cited by:

    1. Federico Pablo & Antonio García-Tabuenca & María Teresa Gallo & Juan Luis Santos & Tomás Mancha, 2012. "Agent-based modeling: A promising way for modeling entrepreneurial activity from location perspective," ERSA conference papers ersa12p551, European Regional Science Association.

    More about this item

    Keywords

    Firm closure; financial loss; restart;

    JEL classification:

    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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