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

lar public support are also endorsed by the fact, that if previously failed entrepreneurs
actually restart, their start-up financing composition and the financing sources tapped are
not significantly different from that of other entrepreneurs (Metzger, 2007a) suggesting
that entrepreneurs who want to restart select themselves into adequate financing.

However, the major finding of this analysis is that financial losses due to business closure
strongly influence the likelihood of entrepreneurial restart - yet only when losses are
incurred by banks. This has an important implication for entrepreneurs. Entrepreneurs
who would seek to continue their entrepreneurial career after a business closure would
be well advised to avoid causing losses at banks or at public financial institutions. This
advice is worth heeding if a business does not meet entrepreneur’s target performance
threshold. Then, entrepreneurs either can keep the ailing business afloat or can fore-
sightedly close the business. Frequently, entrepreneurs forfeit the opportunity for a well-
managed closure in such a situation because they overly optimistic trust in better times.
However, in doing so, they risk a worsening of the business’ economic situation that con-
sequently would deteriorate their restart chances.¹

References

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- Konzeption und Erhebung. ZEW Dokumentation No. 01-01. Mannheim.

Boston Consulting Group. 2002. Setting the Phoenix Free - A Report on Entrepreneurial
Restarters, The Boston Consulting Group, Munich.

Dennis, W.J. and L.W. Fernald. 2001. The Chances of Financial Success (and Loss) from
Small Business Ownership. Entrepreneurship Theory and Practice 26(1): 75-83.

Dyer, W.G. 1994. Toward a Theory of Entrepreneurial Careers. Entrepreneurship Theory
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European Commission. 2002. Best Project on Restructuring, Bankruptcy and a Fresh
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Jovanovic, B. 1982. Selection and the Evolution of Industry. Econometrica 50(3): 649-
670.

Kay, R., P. Kranzusch, O. Suprinovic and A. Werner. 2004. Schriften zur Mittelstandsfor-
schung - Restart - Eine zweite Chance für gescheiterte Unternehmer?, Institut für
Mittelstandsforschung Bonn, Bonn.

Liles, P.R. 1974. New business ventures and the entrepreneur. Homewood: Irwin.

McGrath, R.G. 1999. Falling Forward: Real Options Reasoning and Entrepreneurial Fail-
ure. Academy of Management Review 24(1): 13-30.

Metzger, G. 2006. Once Bitte, Twice Shy? The Performance of Entrepreneurial Restarts.
ZEW Discussion Paper No. 06-083. Mannheim.

Metzger, G. 2007a. On the Role of Entrepreneurial Experience for Start-up Financing ZEW
Discussion Paper No. 07-047. Mannheim.

Metzger, G. 2007b. Personal experience: a most vicious and limited circle!? ZEW Discus-
sion Papers No. 07-046. Mannheim.

Metzger, G. 2008. Habitual Entrepreneurs in Germany. Ph.D. Thesis. Chair of Business
Dynamics, Innovation, and Economic Change. Friedrich Schiller University. Jena.

¹ A trivariate probit regression where the independent variables in the three equations refer to the occurrence
of financial losses (1) at the entrepreneurs, (2) at banks and public institutions, and (3) at other stakeholders
(not reported, on demand available from the author) reveals that a closure which happened because the busi-
ness missed the entrepreneurs’ target threshold of performance is associated with a significant lower risk of
losses at both banks and public institutions as well as other stakeholders.

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