Firm closure and exit strategies from a life course perspective (275)

Theme Track: Regional Competitiveness - Firm Demography

Author:
Schutjens, Veronique

In the economic literature entrepreneurship and new firms are regarded as important generators of regional economic growth. Both technological innovation, market flexibility, and growth in terms of output and employment are easily attributed to new and young firms. However, industrial organization studies have shown that in a regional economy the birth and death of firms are strongly interrelated. Moreover, many new firms cease to exist in only a few years time. It is therefore surprising that in economic research the firm closure dimension of entrepreneurship is underrepresented, especially firm failure in the first phase of the life path. This may be due to the fact that from an economic perspective, firm closure is seen as merely offering new markets opportunities for new firms which stimulates entrepreneurship and innovation. As a result the research focus quickly shifts to the (lively) actors filling the new market gap. Consequently we know only little about the reasons why entrepreneurs of young firms stop economic activities and the moment they decide to actually close down the firm. Overall, economic theory suggests that market forces such as strong competition, lagging demand or technological drawbacks are the dominant determinants of firm closure, especially in the first vulnerable stage of the life path. But does firm closure really mirrors market failure? It can be argued that next to economic considerations, also motivational, personal and social factors trigger the decision to stop activities and affect the exit moment and the exit strategy chosen. However, it is still unknown if these reasons and these strategies vary with respect to industrial sector, market structure, or different stages in the lifecycle of firms.

Insight in the backgrounds of firm closure and exit strategies of entrepreneurs is not only of relevance to the research field of firm demography. It can also be of value to economic and regional policy makers in understanding, stimulating and guarding entrepreneurship. Therefore the purpose of this paper is to examine firm closure, exit strategies and its determinants from a life path perspective. With the help of longitudinal data sets containing information about Dutch young firm life paths, in this paper I will address the following questions: What are the determinants of firm closure and of the exit strategy chosen? What characterizes both the entrepreneurs who closed down the young firm and the firm itself, and to what extent does this differ from the characteristics of 'survivors'? To what extent is the firm life path related to firm closure and exit strategy?

[Home]    [Sitemap]