Post-Entry Struggle for Life and Pre-Exit Shadow of Death from a Financial Perspective

Kim Huynh and Robert Petrunia

International Journal of the Economics of Business, 2016, vol. 23, issue 1, 1-18

Abstract: The success or failure of small, young, and private firms depends highly on the evolution of their financial position. This paper considers the post-entry/pre-exit adjustment process of firms, with focus on financial (debt-to-asset ratio) and labor productivity dynamics. Empirically examining financial relationships has been difficult, due to a lack of data on small, young, and private firms. We find that the post-entry struggle for life results in highly productive entrants reducing their leverage. Pre-exit dynamics see firm growth and relative firm size fall, with rising leverage. Increasing leverage hints at a shadow of death . Selection and survivor effects contribute to post-entry dynamics, while turnover and transition effects contribute to pre-exit dynamics.

Date: 2016
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DOI: 10.1080/13571516.2015.1084153

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