Abstract
Business discontinuation is an important feature of dynamic economies, and entries and exits of businesses are closely connected. A majority of entrepreneurship literature have focused on successful ventures, therefore, little is known about why ventures fail. Previous studies showed significant inter-country differences in SME failure rates, while most researches on business failure have been conducted in developed countries, and there is limited knowledge on the causes of business failure in other countries with different economical, political, social, and cultural conditions. As entrepreneurship is a newly developed phenomenon in Iran, considering the economical, social, and cultural conditions of the country, analysis of the entrepreneurship process, and the causes of failure and success, would provide critical information for individual entrepreneurs, venture financiers, and government policy-makers. The purpose of the present study is to identify the main causes of business failure based on an empirical study in Iran. This empirical study on the sample of failed business-owners/managers pointed out that the main causes of business failure are due to lack of good management, no support from banks and financial institutions, inadequate economic sphere, and insufficient governmental policies. In addition, this study indicates differences in some causes of business failure influenced by gender and business sector. Key words: Entrepreneurship, business, causes of business failure, Iran.
Highlights
New firms create new jobs, open up opportunities for upward social mobility, foster economic flexibility, and contribute to competition and economic efficiency (Liao et al, 2009)
The purpose of the present study is to identify the main causes of business failure based on an empirical study in Iran
The number of businesses in the manufacturing and services sector were equal (47%), while 6% were in the agriculture sector. 76.1% of businesses failed within three years and 55.1% failed in the phase of establishment (Table 1)
Summary
New firms create new jobs, open up opportunities for upward social mobility, foster economic flexibility, and contribute to competition and economic efficiency (Liao et al, 2009). The failure of an individual SME will never attract the media’s attention; the consequences of the failure of smaller companies are certainly a serious matter for directly involved stakeholders (FEE, 2004). It is impossible to talk wisely about a theory of entrepreneurship without first acknowledging the pivotal role of entrepreneurial failure. Most entrepreneurship literature focuses on successful ventures. Little is known about why ventures fail. Even less is known about how they fail. Our understanding of entrepreneurship will never be completed until we have a clear understanding of what causes discontinuation. Developing a deeper understanding of new venture failures should provide critical information for several key stakeholders in a new venture - individual entrepreneurs, venture financiers, and government policymakers (Liao et al, 2009)
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