Structural Changes in Japanese SMEs: Business Dynamism in Aging Society and Inter-Firm Transaction Network

Gee Hee Hong, Arata Ito, Yukiko Saito and Thi-Ngoc Anh Nguyen

Policy Discussion Papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: Smooth business succession is vital not only to the survival of a firm, but also to aggregate growth, employment and productivity in Japan. In this paper, we use a rich dataset of Japanese firms to document the changing patterns of firm exits in the context of the aging population and assess the economic costs of business succession issues. We find that the overall health of Japanese firms improved in recent years, with bankruptcy rate and the ratio of zombie firms both decreasing. However, the voluntary exit rate of firms, including profitable ones, has increased in recent years as elderly CEOs cannot find business successors. This has resulted in a deterioration of resource allocation and productivity at the aggregate level. Furthermore, voluntary exits have spillover effects through inter-firm networks and increase the likelihood of exits of connected firms, even when these connected firms are healthy. These findings underscore the importance of addressing business transition issues in a rapidly aging society.

Pages: 42 pages
Date: 2020-01
New Economics Papers: this item is included in nep-bec, nep-eff and nep-ent
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eti:polidp:20003

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