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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. 2
In this study, we examine empirically the effects of industry-, region-, firm- and entrepreneur-specific characteristics on new-firm exit according to forms of exit, using a sample of firms founded in Japan during 1997–2004. Then, we provide evidence that these effects vary significantly between forms of exit, by estimating a compet- ing risks proportional hazards model. It is expected that this paper contributes to the development of research on industry dynamics and provides important ideas for policy makers. The remainder of the paper is organized as follows. In Section 2, we describe the background and related literature of this paper. Section 3 explains the data and method employed in the analysis. Our model of the determinants of exit is discussed in Section 4. The empirical results are presented in Section 5. The final section includes some concluding remarks. 2. Background and related literature In the field of industrial organization, scholars have realized that entry and exit play an essential role in industry dynamics. Entry and exit, which are often regarded as ‘turbulence’ in the market, are vital to maintaining vigorous competition in industries. In fact, a large number of empirical studies have provided insights into the determinants of entry and exit; for example, Dunne et al. (1988) showed the patterns of entry and exit over time in US manufacturing industries. 1 Among new firms, some firms survive and grow in the market through the learning process. Because new firms are expected to contribute to the development of industries, it is beneficial to promote the creation of new firms with growth potential. On the other hand, some firms are forced to exit under competitive pressure. Entry and exit play a key role in maintaining the natural selection mechanism through competition, 1 For a survey of evidence on entry and exit, see, for example, Siegfried and Evans (1994), Carree (2006), and Santarelli and Vivarelli (2007). For more discussions on entry and exit, see also Geroski (1995) and Caves (1998). 3
Page 2 and 3: DISCUSSION PAPER SERIES Discussion
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Page 10 and 11: 3. Data and method 3.1. Data source
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Page 22 and 23: 5.2. Estimation results Using the C
Page 24 and 25: umn (ii) of Table 5. This result su
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Page 30 and 31: References Acs, Z. J., C. Armington
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Page 34 and 35: Nishimura, K. G., T. Nakajima, and
Page 36 and 37: Table 1: Summary statistics for the
Page 38 and 39: Table 3: The definitions of indepen
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