Abstract
Theories of organizational failure predict that reasons for corporate demise may differ by firm age and life cycle stage. However, large-scale empirical studies that investigate the relationship between firm characteristics and specific causes of failure are scarce. This study therefore aims to shed light on firm mortality and firm age by analyzing a unique data set of bankrupt small and medium-sized enterprises. Separate statistical models for individual causes of failure are developed in which the liabilities of age are abstracted and disentangled from liabilities of size and industry specific variables on firm level. In this regard organizational ecology argumentation is integrated with resource-based view reasoning following the call for multi-theoretic approaches in organizational failure research. Results show that different failure causes dominate at specific stages of organizational life as defined by age quartiles. While young and adolescent firms predominantly fail due to internal shortcomings, mature small and medium-sized enterprises struggle more with increased competition and economic slowdowns.
Highlights
Small and medium-sized enterprises (SMEs) are crucial for economic stability and growth, making essential contributions to employment and new job creation (Hyder and Lussier 2016)
Given the economic importance of SMEs, research regarding small-firm bankruptcy is essential for policymakers to foster macroeconomic development, for the many SME stakeholders, such as customers, suppliers, creditors, and employees, who would be affected directly by SME failure, and for the managers and owners of their respective firms to become aware of potential threats and challenges to their businesses (Crutzen and Van Caillie 2008)
The overall relationship seems to be non-monotonic, meaning that the risk of failure due to a poor financial situation again increases for older firms
Summary
Small and medium-sized enterprises (SMEs) are crucial for economic stability and growth, making essential contributions to employment and new job creation (Hyder and Lussier 2016). Bankruptcy and failure continuously affect SMEs worldwide, with especially high firm mortality rates among firms of smaller size (Carter and van Auken 2006; Mayr et al 2017). Given the economic importance of SMEs, research regarding small-firm bankruptcy is essential for policymakers to foster macroeconomic development, for the many SME stakeholders, such as customers, suppliers, creditors, and employees, who would be affected directly by SME failure, and for the managers and owners of their respective firms to become aware of potential threats and challenges to their businesses (Crutzen and Van Caillie 2008). We can learn from corporate failures; while success can come in many forms, only a limited set of factors causes bankruptcy
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