Small Business Failure and External Risk Factors

Jim Everett, John Watson

    Research output: Contribution to journalArticlepeer-review

    188 Citations (Scopus)

    Abstract

    Unlike much of the previous literature, which has generally focused on internal risk factors, this study seeks to explore the impact of macro-economic factors on small business mortality. The results suggest that economic factors appear to be associated with between 30% and 50% of small business failures, depending on the definition of failure used. As expected, failure rates were positively associated with interest rates (where failure was defined as bankruptcy) and the rate of unemployment (where failure was defined as discontinuance of ownership). However, somewhat unexpectedly, failure rates were found to be positively associated with lagged employment rates (where failure was defined as to prevent further losses) and with current and lagged retail sales (where failure was defined as either: failed to "make a go of it"; discontinuance of ownership; or discontinuance of business). This indicates that a strengthening economy may provide the trigger for an increase in voluntary business exits as individual proprietors seek to maximize the returns available to them on both their financial and human capital.

    Original languageEnglish
    Pages (from-to)371-390
    Number of pages20
    JournalSmall Business Economics
    Volume11
    Issue number4
    Publication statusPublished - 1 Dec 1998

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