Factors Affecting Survival, Closure and M&A Exit for Small Businesses

We examine new firms created in 2004 and track their business status in the following four years using the Kauffman Firm Survey data. For firms that exited the sample during the 2004-2008 period, we distinguish between voluntary firm closure in the form of merger or acquisition and compulsory firm closure in the form of failure/permanently closed operations. We apply duration analysis with competing risks to test the effect of owner, business and industry characteristics on firm survival, closure and exit through M&A. The results show that by not taking into account the reason for exit (M&A versus permanently closed operations) we underestimate survival rates. In addition, factors that characterize closed businesses are different from those that characterize businesses that were sold or merged with other businesses.