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focuses on different forms of exit for new firms has been quite scarce until now, partly
because of data unavailability. We therefore estimate the determinants of new-firm
exit by distinguishing bankruptcy, regarded as unsuccessful exit, from other forms
of exit, including merger. In this respect, we provide new evidence on how factors
affecting new-firm exit vary across the forms of exit. By taking into account the
different forms of exit, our analysis helps us better understand factors promoting
industrial dynamics.
To date, much literature have highlighted firm-specific characteristics as factors
affecting post-entry performance. 3 Some studies have examined whether firm size
and age affect post-entry performance (e.g., Evans, 1987). While firm-specific char-
acteristics do have an impact on survival and exit, it can be useful to investigate
how the survival and exit of new firms depend on industry-specific characteristics, in
order to understand factors promoting market competition from the perspective of
economic policy. Given that economic efficiency and allocation are achieved in the
competitive process, it is hoped that entry and exit occur smoothly. However, when
an entrepreneur intends to enter or exit a market, this behavior may be influenced
by barriers to entry and exit, associated with industry-specific characteristics. To
shed light on the competitive process, we assess whether and how the probability of
exit of new firms differs across industries. In addition to industry-specific character-
istics, some recent studies have found that regional factors, such as agglomeration,
matter in the post-entry performance of new firms (e.g., Fritsch et al., 2006; Falck,
2007). Compared with established firms, new firms are more vulnerable to environ-
mental factors, including industry- and regional-specific characteristics. Exploring
3 With respect to the determinants of exit, some studies have highlighted the effects of financial
conditions on the survival and exit of firms (e.g., Evans and Jovanovic, 1989). Even if a new firm has
growth potential, the firm cannot necessarily secure sufficient funds from external capital markets
because of a lack of business history. This is because, as Berger and Udell (1998) argued, new firms
are arguably the most informationally opaque, and adverse selection and moral hazard problems due
to information asymmetries hinder external financing of the firms’ activities. Although the effects
of financial conditions may provide interesting insights into financial strategies, this paper does not
examine the effects of financial conditions mainly because we did not obtain financial statements.
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