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which is required to achieve economic efficiency in industries.
Much attention has been paid to the post-entry performance of new firms as
a way to assess the competitive process in markets. The survival and exit of new
firms have been addressed in a rich stream of literature. To date, a large number
of empirical studies have examined the survival and exit of firms during the start-
up period. Audretsch (1991), for example, estimated the determinants of 10-year
survival rates for new establishments, using a logit model. Wagner (1994) also
examined the survival of new firms and the duration of survival in years, using
a probit model and a tobit model, respectively. Audretsch and Mahmood (1991,
1995) applied a proportional hazards model proposed by Cox (1972) (PH model,
henceforth) to analyze the survival and exit of new establishments and firms. The
PH model has several advantages over binary choice models such as the logit and
probit models, because the PH model takes into account the duration of firm survival
and censoring of observations. Given that post-entry performance depends on firms’
life cycles, the PH model based on firms’ age is more suitable. By using the PH
model, we can utilize not only information on whether the firm exits but also the
time at which the firm exits. Mata and Portugal (1994) and Mata et al. (1995) used
the PH model to estimate the determinants of survival of new firms and plants in
Portugal. Honjo (2000a) also investigated the determinants of business failure of
new firms in Japan, excluding other forms of exit. 2
Although it is worthwhile to understand what factors have more influence on
the survival and exit of new firms, the previous studies tend to treat all forms of
exit as homogeneous. As Parker (2009) pointed out, entrepreneurs close businesses
for a variety of reasons, and there are economic differences between forms of exit.
Ignoring heterogeneity between the forms of exit may yield incorrect interpretations
of the factors leading to the survival and exit of firms. Nevertheless, research that
2 For Japan, Doi (1999) examined the determinants of firm exit at the industry level. Harada
(2007) also examined the determinants of small-firm exit in Japan, by distinguishing between
economic-forced exit and non-economic-forced exit.
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