Determinants of business failure: The role of firm size |
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Authors: | Afsaneh Assadian Jon M. Ford |
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Affiliation: | (1) School of Business & Entrepreneurship, Nova Southeastern University, 33315 Fort Laudentale, FL;(2) Department of Economics, University of Texas-Arlington, 76019 Arlington, TX |
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Abstract: | This study uses quarterly time series data for the period 1964:I–1991:III to determine the effects of several factors on the aggregate business failure rate in the United States. The theoretical basis used is a dynamic profit maximization model. The empirical specification is a double-log functional form. A new approach to the incorporation of firm size into the analysis of business failure is adopted. Viewing business failure as a consequence of negative profits, the estimates support the managerial utility maximization theory. Moreover the findings show that new business formation has a negative effect on the failure rate while the same variable lagged by twelve quarters captures the timing of failure with a positive coefficient. |
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