Abstract

Previous research examining firm exit rates has focused upon failure rates and the consensus has been that new firms fail at an alarming rate. Several perspectives including theories of efficiency, utility maximization, and natural selection explain that firms will exit the market if they fall below a certain level of output and well-performing firms survive while those with poor performance do not. However, new research exists which suggests that exits should not be equated with failure (Headd, 2003). Threshold theory and prospect theory, with its recent application in behavioral finance, have been used more recently to explain these discrepancies.

In order to begin to reconcile the differences between these findings and theoretical perspectives this research completes a follow-up study of 5 year old firms to examine exit/failure rates and the reasons for exit.

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