Business failure of new firms: an empirical analysis using a multiplicative hazards model

Abstract

This paper investigates business failure of new firms. Using a multiplicative hazards model, we estimate the determinants of business failure among new manufacturing firms in Tokyo during the period 1986 to 1994. It is found that a new firm without sufficient capital or a sufficient size has a higher risk of business failure. It is also found that the new firm tends to have more difficulty surviving in an industry characterized by a high entry rate. With respect to the timing of entry, the new firm that entered just before or after the collapse of the so-called bubble economy has been more likely to fail. Furthermore, we estimate a regression model based not only on age but also on calendar time. By using a regression model based on calendar time, it is found that the firm's age has been related to business failure.