Firm Closure, Financial Losses and the Consequences for an Entrepreneurial Restart



Table 2: Variable means

Variable

Mean

Unit

Variable

Mean

Unit

Main covariates I: Closure reasons a

Control variables

DEBTS

23.7

%

CAPITAL

64.7

‘000 €

NOTWORTH

37.9

%

CAPITALM

33.9

%

ILLIQUIDITY

45.3

%

TEAM

55.5

%

WAGEEMPL

5.5

%

TEAMM

7.3

%

RETIRE

4.1

%

LIMITED

48.9

%

PRIVATE

12.8

%

SIZE

11.8

# Employees

OTHERREAS

21.2

%

SIZEM

8.4

%

QUARREL

13.7

%

AGE

4.1

Years

_AGEM

3.6

%

Main covariates II: Bearer of financial losses a

EAST

51.6

%

Sharehol

61.0

%

HTIND

2.0

%

BANKS

21.6

%

OTHERIND

11.4

%

OTHERSTAKE

30.7

%

TECHSERV

4.8

%

OTHERSERV

6.8

%

CONSTRUCT

20.5

%

TRADE_________

37.1

%____

a Multiple statements were possible.

Source: ZEW Entrepreneurship Study.

The measures WAGEEMPL and RETIRE indicate a shift in the source of income. However,
as
WAGEEMPL is insignificant, a return to the workforce does not affect the likelihood of
restart.
RETIRE, by contrast, is significantly negative, meaning that in most cases enter-
ing retirement is a final decision. A significantly negative effect on the likelihood of re-
start is also associated with the variable
PRIVATE. Business closure due to private rea-
sons such as illness makes restart more unlikely, while
OTHERREAS, i.e., unspecified
other reasons, is insignificant, thus having no impact. If an argument within the entre-
preneurial team was a reason for business closure, this seems - for logical reasons - to
encourage entrepreneurs to venture anew; the effect of
QUARREL is significantly positive.

Table 3 provides the probit estimation results. Effects arising from the closure-reason
indicators are shown in the upper part of the table followed by the effects arising from
the loss measures in the lower part. The second and third row presents results for the
first specification which omits the loss indicators. The effect of the measure
DEBTS is
significantly positive in this first specification. There is thus evidence that closures indica-
tive of business failure reduce the likelihood of restart, confirming the findings of
Metzger, 2008).
NOTWORTH is not significant either, meaning that if entrepreneurs close
a business because it fails to meet their target performance threshold, their restart prob-
ability is not affected by this experience. Liquidity problems are the most important clo-
sure reason, but do not affect the restart decision, as suggested by the insignificance of
the
ILLIQUIDITY indicator.

The measures WAGEEMPL and RETIRE indicate a shift in the source of income. However,
as
WAGEEMPL is insignificant, a return to the workforce does not affect the likelihood of
restart.
RETIRE, by contrast, is significantly negative, meaning that in most cases enter-
ing retirement is a final decision. A significantly negative effect on the likelihood of re-
start is also associated with the variable
PRIVATE. Business closure due to private rea-



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