10
Personal Experience: A Most Vicious and Limited Circle!?
ence for the experienced firms. There the share of bankruptcies is almost twice
the share of financially forced voluntary closures.
Half of all voluntary closures of sound firms happen within 32 months of es-
tablishment (not reported in any table). Referring to bankruptcies, the time by
failure distribution differs between novice and experienced firms. Half of the
novice firms that go bankrupt file to open proceedings during the first 37 months
after foundation. This period is shorter in the case of experienced firms; half of
them file for bankruptcy within only 30 months. Ignoring the relative number of
bankruptcies in each category, one might conclude that experience helps entre-
preneurs see economic reason and file for bankruptcy earlier than novices. The
time by failure distribution of financially forced ‘voluntary’ firm closures is uni-
form again. About 18 months elapse before half of the closures take place.
Testing the hypotheses
In order to account for the large range of important factors that may affect a
firm’s risk of closure, the analysis uses two types of data: individual information
and firm information. The values of the covariates refer to the times when the
firms were founded except the measures, which are applied to describe the firm’s
management. These variables are modeled in a time-varying manner, as when
relevant entrepreneurs leave or start participating in a firm during the observation
period the management characteristics can change. Measures concerned by this
are the four indicators accounting for the way by which previous entrepreneurial
experience was gained (i.e. whether the restart took place after a sale of share-
holdings, a voluntary closure of a financially distressed firm, a voluntary closure
of a financially sound firm, or after bankruptcy). Furthermore, the other experi-
ence measures, namely within-industry experience2 and multiple3 entrepreneurial
experiences, as well as the formal education measure, the age variables, and the
team indicator are introduced as time-varying covariates.
The experience measures as the main explanatory variables are applied in or-
der to test the hypotheses, with a lack of success being indicated by failure ex-
perience. Within-industry experience is a measure that is more closely related to
specific knowledge and multiple experiences indicate inter-business learning and
thus enlarged entrepreneurial knowledge. Finally, an indicator for graduates is
introduced, which accounts for the possible effects of human capital from higher
education.
Several control variables are applied. These measures are necessary to take
out side effects of factors that influence survival but are not in the focus of the
analysis, including firm information and economic founding conditions. The
most probable and the most important control variables are the two indicators
regarding the initial economic situation of the firms. The measures are appraisals
provided by Creditreform. The first indicator, namely payment behavior, account
for firms that on average kept to their payment terms, signaling reliability ,