Modeling the timing of business firm exits

✍ Scribed by Peter Garrod; Walter Miklius

• Publisher: Springer US
• Year: 1990
• Tongue: English
• Weight: 985 KB
• Volume: 2
• Category: Article
• ISSN: 0921-898X
• DOI: 10.1007/bf00389674

✦ Synopsis

The previous theoretical studies of the Uming of business exits have employed two different approaches. They have either developed sequential decision-making models or models based on gambler's ruin. The purpose of this paper is to evaluate both approaches. For this task some simple models of the exit process are developed and it is shown that both types of models are capable of generating the observed patterns of firm mortality. The reasonableness of the assumptions and the importance of key variables in the two models are tested using a case study of restaurant exits. We find that the sequential decision-making model would have to be rather complex to serve as a realis6c descriptive model of the exit process. Gambler's ruin models, on the other hand, provide a realistic descriptive model not only of the environment in which a large portion of this industry operates, but of the decision process as weil. Models based on gambler's ruin may, therefore, pr'ovide a potenUally useful approach for modeling exit process in other industries dominated by small firms.