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

Firm closure, financial losses and the consequences for
an entrepreneurial restart

Georg Metzger

ZEW Centre for European Economic Research, Mannheim

P.O.Box 103443

68034 Mannheim, Germany

Phone: +49 621 1235-185, e-mail: [email protected]
www.zew.de

Abstract

Many entrepreneurs who close a business are actually willing to venture anew. However,
to realize a restart is not only a matter of willingness on the part of the entrepreneur but
also of its feasibility. Regarding the feasibility of a restart, the aspect of capital acquisi-
tion might be particularly precarious for renascent entrepreneurs since business closures
are likely to come up with financial losses. Financial losses arising from business closure
can befall various stakeholders: shareholders, banks and public institutions, or suppliers
and other stakeholders. 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. Losses which are incurred privately by the entrepre-
neurs or by other stakeholders do not influence the restart likelihood. Entrepreneurs who
would seek to continue their entrepreneurial career after a business closure would be well
advised to avoid causing losses at banks.

Keywords

Firm closure; financial loss; restart.

JEL-Classifications

G33; L26; M13.

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