Small Business Economics

, Volume 11, Issue 4, pp 371–390 | Cite as

Small Business Failure and External Risk Factors

  • Jim Everett
  • John Watson


Unlike much of the previous literature, which has generally focused on internal risk factors, this study seeks to explore the impact of macro-economic factors on small business mortality. The results suggest that economic factors appear to be associated with between 30% and 50% of small business failures, depending on the definition of failure used. As expected, failure rates were positively associated with interest rates (where failure was defined as bankruptcy) and the rate of unemployment (where failure was defined as discontinuance of ownership). However, somewhat unexpectedly, failure rates were found to be positively associated with lagged employment rates (where failure was defined as to prevent further losses) and with current and lagged retail sales (where failure was defined as either: failed to "make a go of it"; discontinuance of ownership; or discontinuance of business). This indicates that a strengthening economy may provide the trigger for an increase in voluntary business exits as individual proprietors seek to maximize the returns available to them on both their financial and human capital.


Interest Rate Human Capital Failure Rate Previous Literature Small Business 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


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Copyright information

© Kluwer Academic Publishers 1998

Authors and Affiliations

  • Jim Everett
    • 1
  • John Watson
    • 1
  1. 1.Department of Information Management and MarketingUniversity of Western AustraliaNedlandsAustralia

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