The Probability of Exit

Martha A. Schary

RAND Journal of Economics, 1991, vol. 22, issue 3, 339-353

Abstract: A firm may leave an industry in at least three ways: through merger, voluntary liquidation, or bankruptcy. There are important economic differences between forms of exit, yet previous work has treated exits as homogeneous. This article develops a model of the relation between the forms of exit and uses it to guide selection of simple, estimated statistical models. An empirical example from the cotton textile industry demonstrates the arguments. The results in this data are that the form of exit is not related to profitability, that there is some heterogeneity across forms of exit, and that information about the characteristics of the firm alone is not sufficient to predict all forms of exit.

Date: 1991
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