Personal Experience: A Most Vicious and Limited Circle!?
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just as restarts after closing a sound firm voluntarily do not. Conversely, restarts
after business failure are more likely to fail than other restarts or firms of novice
entrepreneurs. However, the effects of the two failure types differ in amplitude.
Compared to novice firms, restarts after closing a distressed firm voluntarily
have a 25 percent higher risk of failure, while the risk for restarts after bank-
ruptcy is increased by 57 percent compared to novice firms. Besides, again it is
found that the failure risk is not significantly affected by entrepreneurial within-
industry experience and entrepreneurs who have multiple experiences are faced
with an increased risk of failure. Owing to these results, the first hypothesis is
rejected. Experience that is, one might say, crowned with success, does not lower
the risk of failure. Negative experience increases the failure risk. This means that
the second hypothesis is definitely rejected; indeed, the opposite effect even
arises. Nevertheless, the derived effect might be relevant if bankruptcy is sepa-
rated from the failure type aggregate.
Comparing the results of the single failure risk regression with those of model
C, which are the failure type specific estimates, helps to evaluate the findings
above. Model C, which is based on failure due to bankruptcy, yet again shows
that failure experience increases the risk of bankruptcy compared to novice
firms. The additional bankruptcy risk is 26 percent for restarts after closing a
distressed firm voluntarily, and is 71 percent for restarts after bankruptcy. Only
restarts after closing a sound firm voluntarily have an 18 percent lower bank-
ruptcy risk. Restarts after sale of shareholdings do not significantly affect the
bankruptcy risk. As seen twice above, experience gained within the same indus-
try in which the restart took place has no significant effect on the closure risk
while multiple experiences lead to an extra risk again.
Discussion of the findings
The comparison of the results of the three applied models shows that specific
firm characteristics mostly unambiguously increase or decrease the firms’ clo-
sure probability or failure risk. Only in a few cases, the same characteristic leads
to different results as referred to, for example, senior entrepreneurs who increase
the probability of closure but decrease the bankruptcy risk. With regard to the
human capital indicators, it is a similar story. Apart from restarts after closing a
sound firm voluntarily, which do not differ from novice firms in their closure
probability but are less likely to fail, all other experience effects are unambigu-
ous. Experience that is based on the sale of shareholdings does not matter at all,
but failure experience does. Restarts after a voluntary closure of a financially
distressed firm, as well as restarts after bankruptcy are faced with a higher clo-
sure probability and also with an increased risk to fail again.
However, why do failure experiences increase failure risks? Ucbasaran et al.
(2006) argue that failed entrepreneurs are faced with pressure to take action be-
cause they have dragged themselves into a loss situation. This would force risk-