New small firm survival in England

Abstract

This paper investigates the determinants of the survival, between 2001 and 2004, of 622 small firms in England. Seventy one percent of these firms were less than 5 years old in 2001. Prior work by industrial economists has primarily focussed upon factors such as profitability and exit barriers. In contrast, this paper adopts a more managerial approach by examining whether the human capital of the business owner and organisational variables explain survival and non-survival. Our results suggest the founder’s education and bank finance promote firm survival. Firms which compete on price, or report being financially constrained at start-up, are much less likely to survive.

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Notes

  1. 1.

    The response rate of the survey was 73%. Full details are provided in Capelleras et al. (2008).

  2. 2.

    Using the measure of new VAT Registrations per 10,000 population the rates for Tees Valley, Shropshire and Buckinghamshire in 2001 were 18, 32 and 52 respectively. The English average was 33. Equally importantly, as shown by Greene et al. (2004), whilst formation rates do vary with the economic cycle, Tees Valley is always low, Shropshire is always average and Buckinghamshire is always high, over the period 1980–2001.

  3. 3.

    In the vast majority of cases the interviewee was the business owner. Where this was not the case the interview only took place when information on the founder/owner could be provided by the interviewee.

  4. 4.

    The survival time is not collinear with calendar time because we have variation in the year in which the firms started.

  5. 5.

    For more information see Jenkins (2005).

  6. 6.

    Frankish et al. (2006) using a large data set of 6,850 new firms find a “valley of death” with 6 month closure rates rising to a peak of 12% after 18 months and then falling away to 6% after 4 years.

  7. 7.

    Although not presented here, we also used more detailed information on the financial constrained variable by using a set of dummies indicating whether the firm had a serious financial problem or a not very serious financial problem in its first year. The results suggest that only firms with serious financial problems are less likely to survive.

  8. 8.

    Frankish et al. (2006) find that whilst education does not influence business survival rates over 2 years they do find that less educated founders had lower survival rates in the first 6 months. This they attribute to such individuals lacking the necessary basic skills of business management.

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Correspondence to George Saridakis.

Additional information

This article befitted substantially from comments provided by Miguel Manjón and an anonymous referee. We would also like to thank Isabel Canette, Priscila Ferreira, Francis Greene, Rebeca Muñoz Torres, Paul Westhead and the participants of the International Comparisons in the Financing of SMEs in Developed Countries Conference, the 2006 European Association of Research in Industrial Economics Conference, the 29th Institute for Small Business and Entrepreneurship and the workshop on Entrepreneurship, Demography and Industrial Location for helpful comments and discussions. All remaining errors are ours.

Appendix

Appendix

Appendix Definition of explanatory variablesa

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Saridakis, G., Mole, K. & Storey, D.J. New small firm survival in England. Empirica 35, 25–39 (2008). https://doi.org/10.1007/s10663-007-9049-9

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Keywords

  • Firms
  • Business failure
  • Duration

JEL Classification

  • L11
  • L25