Entrepreneur characteristics and differences in reasons for business failure: evidence from bankrupt Austrian SMEs

Abstract

Small and medium-sized enterprises (SMEs) are especially dependent on the qualifications and knowledge of entrepreneurs. However, research investigating how the causes of small firm failures are related to entrepreneur characteristics is scarce or even lacking. Therefore, drawing on upper echelons theory, this study is based on a sample of 102 Austrian corporate bankruptcies in the year 2012 and applies logistic regression analyses to examine the relation between entrepreneur characteristics, namely, age, gender, education and experience, and the probability of specific internal causes of bankruptcy. Our findings reveal that firms that are led by older entrepreneurs are significantly less likely to go bankrupt due to a lack of equity, while females reduce the probability of failure because of poor economic competencies. On the other hand, women-headed firms are more prone to bankruptcy due to high costs pressures and firms led by entrepreneurs with industry experience seem to underestimate capital needs and are more likely to fail because of a lack of equity. In particular, management experience appears to be important as it significantly reduces the risk of bankruptcy due to poor business economic competences and high cost pressure. Given that we were unable to detect a significant impact of an entrepreneur’s university degree on the analyzed failure causes, our results may also allow for the improvement of entrepreneurship education. Knowing which entrepreneurial characteristics influence business demise allows to draw more attention on the impact of these traits and the development of management experience in entrepreneurship programs.