Kwansei Gakuin University Repository

1. Introduction
Many new firms exit the market after starting their businesses. Some firms are
forced to go bankrupt because of business failure, and other firms disappear because
of merger, which might be regarded as the result of success. In addition, it has
been observed that entrepreneurs sometimes voluntarily dissolve their businesses.
Although new firms exit the market in such different ways, all forms of exit are
regarded as homogeneous in the existing literature. However, it is possible that the
effects of factors affecting each form of exit offset between forms of exit; therefore,
ignoring heterogeneity between forms of exit would yield incorrect interpretations.
To provide a better understanding of industry dynamics, we explore heterogeneous
exits—bankruptcy, voluntary liquidation, and merger—by focusing on new firms. In
particular, we examine empirically how factors affecting new-firm exit vary across
the forms of exit.
It is well recognized that new small-sized firms play a key role in innovation
(e.g., Acs and Audretsch, 1990). New entrants not only promote innovation, but
also create opportunities for employment. In addition, they are expected to intensify
vigorous competition in industries, which can stimulate economic growth. In this
respect, promoting new entry is fairly important from the perspective of economic
policy. On the other hand, it is well known that new firms tend to face difficulties
because of fewer resources and inexperience. In fact, some new firms are likely to
exit the market within a few years. Other things being equal, new firms are more
likely to exit from competitive industries than from uncompetitive industries. More
precisely, bankruptcy resulting from failure tends to occur in competitive industries,
although it is inconclusive that other forms of exit, which do not necessarily indicate
failure, tend to occur in such industries. To understand the survival and exit of new
firms more accurately, we provide new evidence on how the determinants of new-firm
exit vary according to forms of exit.
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