The Birth, Growth and Demise of Entrepreneurial Firms
4. Firm exit INTRODUCTION Firm exit is a vital but often under-examined part of the entrepreneurial process. Many ongoing firms are not necessarily successful in terms of operating at a profit (van Witteloostuijn, 1998), and the exit of firms may provide room for new entrants to potentially put resources to more efficient usage (Pe’er & Vertinsky, 2008). As we could see in our analysis of firm births in Chapter 3, several demand side forces clearly affected the birth of firms. It is possible that such forces also shape the path by which these firms evolve by influencing both if and how they eventually exit. This chapter serves to integrate how these differences in firms’ initial conditions affect their subsequent evolution as more mature firms, drawing upon research on firm exit in entrepreneurship, industrial organization economics, and organizational ecology. Our goal is to integrate the findings from other chapters in our analysis of firm exits. Firm exit and its role for economies, regions, and individuals have been touched upon by various theoretical literatures such as industrial organization economics, strategic management, organization ecology, and entrepreneurship. By and large, these literatures have focused on distinct aspects of exit. Economics oriented research has highlighted the roles of the economic cycle and the industry’s specific characteristics, such as knowledge spillovers or the innovation rate, for the exit of new firms (e.g., Audretsch, 1995). Organization and management research has focused on how a broader set of economic and social factors shape the exit of new firms. For...
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