1 Introduction
2 Method
2.1 Description of the studies in our sample
Journal name | # papers |
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Small Business Economics | 14 |
Strategic Management Journal | 7 |
Journal of International Business Studies | 5 |
Regional Studies | 4 |
Journal of Banking & Finance | 4 |
Economic Journal | 4 |
Research Policy | 4 |
International Journal of Industrial Organization | 4 |
Journal of Economic Dynamics & Control | 4 |
Oxford Economic Papers-New Series | 3 |
European Economic Review | 3 |
Review of Economics and Statistics | 3 |
Economics Letters | 3 |
International Economic Review | 3 |
Rand Journal of Economics | 2 |
American Economic Journal-Macroeconomics | 2 |
International Business Review | 2 |
International Small Business Journal | 2 |
Quarterly Journal of Economics | 2 |
Journal of Law & Economics | 2 |
Industrial and Corporate Change | 2 |
Review of Financial Studies | 2 |
Review of Economics Studies | 2 |
Labour Economics | 2 |
American Economic Review | 2 |
Entrepreneurship Theory and Practice | 2 |
Journal of Management | 2 |
Journal of Development Economics | 2 |
Journal of Business Venturing | 2 |
Environmental & Resource Economics | 1 |
Journal of World Business | 1 |
Group & Organization Management | 1 |
International Journal of Economic Theory | 1 |
Organization Science | 1 |
Economic Development and Cultural Change | 1 |
Financial Management | 1 |
International Journal of Production Economics | 1 |
Canadian Journal of Economics | 1 |
Academy of Management Perspectives | 1 |
Annals of Operations Research | 1 |
Economic Policy | 1 |
Production and Operations Management | 1 |
Journal of Business Research | 1 |
Regional Science and Urban Economics | 1 |
Technological Forecasting and Social Change | 1 |
Financial Review | 1 |
Technovation | 1 |
Business History | 1 |
Journal of Corporate Finance | 1 |
Ecological Economics | 1 |
Economic Theory | 1 |
Kyklos | 1 |
Journal of Econometrics | 1 |
Management International Review | 1 |
Journal of Economic Behavior & Organization | 1 |
Environment and Planning A | 1 |
Economica | 1 |
Progress in Human Geography | 1 |
Journal of Financial and Quantitative Analysis | 1 |
British Journal of Management | 1 |
American Journal of Agricultural Economics | 1 |
European Journal of Operational Research | 1 |
Journal of International Economics | 1 |
Review of Economic Dynamics | 1 |
Journal of International Marketing | 1 |
Food Policy | 1 |
Energy Economics | 1 |
Review of Income and Wealth | 1 |
Entrepreneurship and Regional Development | 1 |
Strategic Entrepreneurship Journal | 1 |
Journal of Marketing | 1 |
Strategic Organization | 1 |
Journal of Monetary Economics | 1 |
Journal of Political Economy | 1 |
Academy of Management Journal | 1 |
Journal of Conflict Resolution | 1 |
Geographic focus | Number of studies |
---|---|
Single EU country | 36 |
US | 19 |
Single Asian country | 9 |
Various EU countries | 5 |
Single Latin American country | 4 |
UK | 4 |
Global | 4 |
Single African country | 3 |
Single US state | 3 |
Canada | 3 |
Latin American countries | 1 |
Australia | 1 |
Pakistan | 1 |
Developing countries | 1 |
Total | 94 |
3 A survey of firm exit
3.1 Exit as business exit
3.1.1 Different conceptualizations of exit
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Firms’ deregistration (Coucke & Sleuwaegen, 2008; Klapper & Richmond, 2011; Varum & Rocha, 2012; Gras & Mendoza-Abarca, 2014; Arbia et al., 2014; Carreira & Teixeira, 2016; Basile et al., 2017). The deregistration can be from an official Business Register held and elaborated by National Statistical Offices (as in Cefis & Marsili, 2006) or it could be a “deregistration” from other commonly used datasets, such as Bureau van Dijk’s Orbis, Amadeus, or Aida that report the records from firms’ financial statements. In these latter cases, researchers infer the exit of the firms making assumptions regarding firms’ behavior, like stopping production operations for a certain time period (Jensen & Miller, 2018; Kumar & Zhang, 2019) or not registering in Orbis or Amadeus any sales or assets for more than a few consecutive years. For example, in Bennett and Hall (2020), “deregistration” from Orbis is considered when no sales and no assets were recorded for at least 3 consecutive years. In another case, Fraisse et al., (2018, p. 159) “define firm exit as a situation where a firm disappears simultaneously from the credit register and from the file containing firms’ annual financial statements.” It should be noted that the papers that use deregistration from one or more registers in order to define exit do not distinguish between the different modes of exit, so deregistration could mean bankruptcy, closure, or acquisition.
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Firms’ forced liquidation (or “bankruptcy”) not initiated by the owner. There are few papers that defined firms’ exit as a forced liquidation not initiated by the owner (Hansen & Ziebarth, 2017; Aga & Francis, 2017) in which, however, the forced liquidation is mostly seen as synonyms of closure, or as a removal from the court register without carrying out the liquidation procedure (Ponikvar et al., 2018)
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Firms’ sell-off/divestiture (or “acquisition” if the perspective of the acquiring firms is adopted) when firms (or parts thereof) are sold to an external organization instead of being closed (Zheng et al., 2017). Among our articles, we find a literature review on firms’ exit by divestiture by Decker and Mellewigt (2007) that focuses on the antecedents of, barriers to, and outcomes of business exit as an important corporate change initiative that emphasizes that business exit should not be seen as an outcome of de-conglomeration, but rather as a part of strategic change and internal reconfiguration, bringing the attention on the seller’s side in a divestiture. The same trajectory has been explored by the only case study among our SRL papers that deals with exit as a divestment of business units. Salvato et al. (2010) study the Falck group, presenting the critical role of exiting a business from an industry to pursue novel entrepreneurial opportunities in another industry and to enable longevity and success of family firms. Conversely, always regarding family firms, Akhter et al. (2016) find that business families may prefer to shut down a satellite business rather than sell it due to identity considerations. The same type of reasoning of Salvato et al. (2010) has the article by Decker and Mellewigt (2012) where its purpose is to examine the potential of business exit for initiating a strategic change in divesting parent firms.
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Closure vs sell-off (Bruyaka & Durand, 2012)
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Closure vs M&A (Weterings & Marsili, 2015)
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Closure vs sell-off (Fortune & Mitchell, 2012)
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Closure vs M&A vs radical restructuring (Cefis & Marsili, 2012)
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Bankruptcy vs closure vs M&A (Balcaen et al., 2012)
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Bankruptcy vs closure vs M&A vs forced liquidation (Ponikvar et al., 2018)
3.1.2 Major developed patterns
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Technical and scale efficiency. Dimara et al. (2008) ask whether productive efficiency influences survival in the food sector, finding that high technical efficiency increases the median survival time and lowers the hazard rate of exit, while a competitive scale of operation, at or near to constant returns to scale, maximizes survival time.
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Innovation. Cefis and Marsili (2006, 2012) find that innovation carried out inside the firm matters for survival. There exists an innovation premium in terms of survival that is larger for young and small firms. In addition, product and process innovation are equally important to lower the probability to close down activities, especially if they are pursued in combination.
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Legal form. Cotei and Farhat (2018) investigate whether a particular legal form (especially corporations vs sole proprietorship) affects firms’ exit, finding that businesses organized as corporations had very different acquisition outcomes than those organized as sole proprietorships, due to differences in innovation and growth potential in the startup years as well as throughout the business’ lifetime. Young innovative and/or fast-growing corporations with external equity investors are more likely to become M&A targets than sole-proprietorship firms.
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Corporate governance. Goktan et al. (2018) examine how corporate governance affects the probability of a corporation being acquired, going private, or going bankrupt. They show that “corporate governance features are more important determinants of the form of a firm’s exit than many economic factors that have figured prominently in prior research” (p. 209).
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The liability of newness. Stinchcombe (1965) theorized that new organizations suffer from the liability of newness, having a higher probability to exit the market than older firms, due to lack of resources and lack of stable relations internally and externally to the firm (Freeman et al., 1983; Bruderl et al., 1992). Among the papers taken into consideration, we find few that explicitly address the problem of surviving in the first years. Cefis and Marsili (2006) find that young and small firms are the most exposed to the risk of exit, but also those that benefit most from innovation to survive in the market.
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The liability of smallness. It also concerns the new organizations and asserts that small new firms have a higher probability to exit the market than large new firms due to the fact that large firms have larger resources (including financial ones) that help them to overcome the difficulties in the early periods after entry (Baum, 1996 for a survey). In our survey, Varum and Rocha (2012) question whether the liability of smallness applies also during economic crises suggesting that large firms suffer a greater increase in exit hazard during downturns than smaller firms do, although small firms remain generally more likely to exit. Kim et al. (2015) analyzing a large sample of small firms during the 1997–1998 Korean economic crisis show the devastating impact of the crisis on small firms especially on those that had foreign liabilities prior to the crisis. Klapper and Richmond (2011) confirm that also in an African Country—Ghana—the probability of survival of new firms increases with firm size and the level of GDP.
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Environmental regulations. The effects of environmental regulations on the exit decisions of establishments are explored by Biørn et al. (1998), who find, surprisingly, that, in two out of three sectors they have studied, “establishments under strict environmental regulations had a lower tendency to exit than did establishments under weak or no environmental regulation.” (p. 35), concluding that strict environmental regulations do not kill off firms, but may actually benefit them.
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Regional characteristics. Weterings and Marsili (2015) and Basile et al. (2017) investigate whether the regional characteristics influence the likelihood of firms’ exit. The former article finds that high regional density of firms in an industry is associated with a lower probability to exit by closure and higher probability to exit by M&A. And the latter shows that industry variety reduces the likelihood of firm exit, although the localization economies positively influence firm survival only in services sectors.
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Credit/bank access. Firms’ capacity to access financial/bank credit has an effect on firms’ exit, since exit can be a consequence of difficulties to access credit in a poor local financial development (Fafchamps & Schündeln, 2013) or when the bank credit decreases due to the effect of a merger between two large banks that affects credit market competition (Fraisse et al., 2018).
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Financial Crisis. Special attention has been given to the effects of the financial/economic crisis on firms’ exit. Kim et al. (2015) study the effect of the Korean crisis in 1997–1998 on small firms holding foreign-currency-denominated debt. Carreira and Teixeira (2016) investigate the determinants of market selection mechanism in severe recessions as the financial crisis (2007–2008); Martinez et al. (2019) examine the impact of the financial crisis (2007–2008) on firms’ failure in manufacturing and service sectors separately. Generally, financial/economic crises increase the probability of firms’ exit; however, the magnitude of the increase is different among different sectors, among different time periods, and among different types of exit.
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Socio-economic jolts. More in general, the effects of socio-economic environmental jolts on the firms’ exit were taken into consideration, as in Kumar and Zhang (2019) who explore the effects of productivity and demand shocks on exit. Finally, the role of macroeconomic instability on firms’ exit is discussed by Rozo (2018) and by Bhattacharjee et al., (2009). The latter find that macroeconomic instability has opposing effects on bankruptcy hazard and acquisition hazard, raising the former and lowering the latter.
3.2 Firm exit and the individual
3.3 Exit as a specific market exit
3.4 Exit from a foreign market
3.5 Exit and market dynamics
4 Overview of the special issue papers
Authors | Research question | Data | Types of exit | Main findings |
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Masatoshi Kato, Koichiro Onishi, and Yuji Honjo | How the survival chances of new firms with patent stock vary across exit routes (bankruptcy, voluntary liquidation, and merger)? | 5270 new Japanese firms from 2003 to 2013 | Firm exit (bankruptcy, voluntary liquidation, and merger) | Overall, new firms that have greater patent stock are less likely to exit by bankruptcy and more likely to exit by merger. These results are consistent for both patent applications and granted patents. |
Noni Symeonidou, Dawn R. DeTienne, and Francesco Chirico | How performance thresholds affect exit in family firms? | 1191 US firms over the period 2008–2011 (Kauffman Firm Survey, KFS) | Firm exit (focus on family firms) | As a result of socioemotional benefits, family firms have lower thresholds than non-family firms and are thus more willing to persist with their businesses. |
Carlos Carreira, Paulino Teixeira and Ernesto Nieto-Carrillo | How can zombie firms survive for long periods? Are they inherently unviable? And what are the factors that drive zombies to recover rather than exiting? | 273,907 Portuguese manufacturing and services firms covering the 2004–2017 period | Firm exit (focus on recovery of zombie firms) | Most zombie firms are “entrenched”, that is, with a higher probability of non-transition into alternative states. However, downsizing and restructuring, as well as debt restructuring, are crucial for recovering zombie firms. |
Marius Tuft Mathisen, Raj Krishnan Shankar, Øystein Widding, Einar Rasmussen | What are the enabling factors of exit via trade sale of research-based spin-offs? | 9 trade sales of research-based spin-offs in Norway | Firm exit (focus on trade sales) | Three elements determine a successful trade sale: 1) potential synergies, 2) credible alternatives, and 3) uncertainty reduction. These are linked to the focal venture but also related to the idiosyncratic dyad with the buyer. |
Marco Grazzi, Chiara Piccardo, Cecilia Vergari | What is the impact of patents and trademarks, and other firm characteristics, across different exit modes (involuntary and M&A)? | Around 400,000 Italian firms on average per year from manufacturing, trade and service. Period: 2005–2014; source: Infocamere, AIDA (Bureau Van Dijk) | Firm exit (focus on involuntary exit and exit via M&A) | Intellectual Property instruments reduce the probability of involuntary exit and M&A. The relative impact changes however with the mode of exit: patents are more relevant than trademarks in preventing involuntary exit; the opposite holds for M&A. |
Karlien Coppens, Mirjam Knockaert | Under which conditions entrepreneurs are more or less likely to persist with their distressed venture? | 231 entrepreneurs in Belgium who called upon help from a support agency for distressed ventures in 2016 | Individual and firm exit (focus on entrepreneurial persistence) | Persistence is more evident for entrepreneurs of firms with more employees and with lower levels of operating debts. When the firm’s level of operating debts increases, the probability of persistence decreases for entrepreneurs with no alternative family income and with dependent family members. |