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Because entrepreneurship entails uncertainty, business failure is a common outcome for entrepreneurs. When entrepreneurs encounter business failure, they carry a financial, social, and emotional burden associated with the failure. However, the magnitude of this burden differs by institutions, influencing entrepreneurial decisions and behaviors. Although institutions governing the rules of business failure are a topic for a rapidly growing field of research, research on this topic is highly fragmented. Therefore, the purpose of this systematic review is to unpack the relationships between institutions—governing the rules of business failure—and entrepreneurial decisions/behaviors. The paper provides a fine-grained and comprehensive review of the relevant literature and develops an agenda to guide future research. [ABSTRACT FROM AUTHOR]

In this paper, we study how the support of heterogeneous venture capital firms (VCs), that is: independent venture capital firms (IVCs), bank-affiliated venture capital firms (BVCs), and corporate venture capital firms (CVCs), shapes the delisting route of companies through business failure and merger and acquisitions (M&As), while distinguishing between European M&As and extra-EU M&As after the initial public offering (IPO). We find that the influence of the VCs in the firms' post-IPO delisting varies according to the mode of delisting and the type of venture capitalist. In particular, we find that the presence of leading IVC and BVC investments before IPO is related to a lower likelihood of exiting the stock market through business failure but does not significantly affect the likelihood of M&As. In contrast, the presence of CVC investors is related to a higher likelihood of delisting through extra-EU M&As. [ABSTRACT FROM AUTHOR]

While the study of international entrepreneurship has been dominated by studies of international new ventures, the study of comparative international entrepreneurship has received relatively little attention. We argue that since such international differences are often the underlying drivers for entrepreneurship that crosses borders, this area of research has a rich potential to improve our understanding of international entrepreneurship. In this paper, we develop a theoretical framework to examine the effects of the external business environment (the soil) on the entrepreneurial entry by individuals (the seeds). This leads us to fundamental predictions regarding differences in the extent of entrepreneurship in different national contexts. While in developed economies business ventures are more likely to be launched when the turnover rate of incumbent firms is high, the opposite is true in developing economies. Estimates generated using a large-scale data set provide empirical support for our theoretical predictions. Our findings suggest important avenues for new research regarding the role of factors such as the liability of newness and the stigma of failure in different national contexts, as well as the manner in which entrepreneurial dynamics evolve over time. [ABSTRACT FROM AUTHOR]

This paper introduces a large-scale administrative panel data set on corporate bankruptcy in Germany that allows for an econometric analysis of involuntary exits where previous studies mixed voluntary and involuntary exits. Approximately 83 % of all bankruptcies occur in plants with not more than 10 employees, and 61 % of all bankrupt plants are not older than 5 years. The descriptive statistics and regression analysis indicate substantial negative age dependence with respect to bankruptcy risk but confirm negative size dependence for mature plants only. Our results corroborate hypotheses stressing increasing capabilities and positional advantage, both predicting negative age dependence with respect to bankruptcy risk due to productivity improvements. The results are not consistent with the theories explaining age dependence via imprinting or structural inertia. [ABSTRACT FROM AUTHOR]

This work contributes to disaster research by exploring the impact on new firm creation of the COVID-19 pandemic and the pandemic-related policies. We develop hypotheses on the individual and combined effects of pandemic severity and public policies aimed at controlling the spread of the disease (shutdown policies) or protecting the economy from its negative consequences (demand stimulus and firm support policies). Then, we test these hypotheses using data on Italy in the first and second 2020 pandemic waves. Results show that pandemic severity negatively affected new firm creation during the first wave. Shutdown policies had negative effects too, especially in the regions where the pandemic was less severe. The effects of demand stimulus policies were positive and stronger the less severe the pandemic was while the impact of firm support policies was negative in the regions where the pandemic was more severe. All these effects vanished in the second wave. Plain English Summary: Disasters cause slowdowns in new firm creation that disaster recovery policies may aggravate or alleviate. Our analysis of the effects of the COVID-19 pandemic in Italy reveals that this major disaster resulted in a large drop in new firm creation rates. During the first pandemic wave, the drop was concentrated in the regions where the pandemic was more severe. Examining the effects of the shutdown policies implemented to contain the spread of the disease and the measures designed to protect the economy provides useful guidelines for policymakers. First, we show that shutdown policies inhibit new firm creation. Policymakers can however alleviate this negative effect by implementing less strict measures in the areas not severely affected by the disaster. Second, despite we understand that policymakers need to provide relief to existing firms in the most affected industries to avoid business failures, we indicate they should simultaneously invest in stimulating demand in these industries to sustain also new firm creation. [ABSTRACT FROM AUTHOR]

Using MSA-level data over 1994–2014, we study the effect of bank failures on local business dynamics, in the form of net business formation and net job creation. We find that at least one bank failure in the metropolitan statistical area (MSA) with the mean population prevents approximately 475 net businesses from forming in that area, compared with MSAs that experience no bank failures, ceteris paribus. The equivalent effect on net job creation is 16,433 net job losses. Our results are even stronger for small businesses, which are usually more dependent on bank-firm relationships. These effects point to significant welfare losses stemming from bank failures, highlighting an important role for government intervention. We show that the Troubled Asset Relief Program (TARP) is effective in reducing the negative effects of bank failures on local business dynamics. This positive effect of TARP is quite uniform across small and large firms. [ABSTRACT FROM AUTHOR]

COVID-19 placed a special role on fiscal policy in rescuing companies short of liquidity from insolvency. In the first months of the crisis, SMEs as the backbone of Germany's economy benefited from large and mainly indiscriminate aid measures. Avoiding business failures in a whatever-it-takes fashion contrasts, however, with the cleansing mechanism of economic crises: a mechanism which forces unviable firms out of the market, thereby reallocating resources efficiently. By focusing on firms' pre-crisis financial standing, we estimate the extent to which the policy response induced an insolvency gap and analyze whether the gap is characterized by firms which were already struggling before the pandemic. With the policy measures being focused on smaller firms, we also examine whether this insolvency gap differs with respect to firm size. Our results show that the COVID-19 policy response in Germany has triggered a backlog of insolvencies that is particularly pronounced among financially weak, small firms, having potential long-term implications on entrepreneurship and economic recovery. Plain English Summary This study analyzes the extent to which the strong policy support to companies in the early phase of the COVID-19 crisis has prevented a large wave of corporate insolvencies. Using data of about 1.5 million German companies, it is shown that it was mainly smaller firms that experienced strong financial distress and would have gone bankrupt without policy assistance. In times of crises, insolvencies usually allow for a reallocation of employees and capital to more efficient firms. However, the analysis reveals that this 'cleansing effect' is hampered in the current crisis as the largely indiscriminate granting of liquidity subsidies and the temporary suspension of the duty to file for insolvency have caused an insolvency gap that is driven by firms which were already in a weak financial position before the crisis. Overall, the insolvency gap is estimated to affect around 25,000 companies, a substantial number compared to the around 16,300 actual insolvencies in 2020. In the ongoing crisis, policy makers should prefer instruments favoring entrepreneurs who respond innovatively to the pandemic instead of prolonging the survival of near-insolvent firms. [ABSTRACT FROM AUTHOR]

We explore how involuntary and voluntary exits from self-employment affect life and health satisfaction. To that end, we use rich longitudinal data from the German Socio-Economic Panel from 1985 to 2017 and a difference-in-differences estimator. We find that while transitioning from self-employment to salaried employment brings small improvements in health and life satisfaction, the negative psychological costs of business failure (i.e., switching from self-employment to unemployment) are substantial and exceed the costs of involuntarily losing a salaried job. Meanwhile, leaving self-employment has no consequences for self-reported physical health and behaviors such as smoking and drinking, implying that the costs of losing self-employment are mainly psychological. Moreover, former business owners fail to adapt to an involuntary self-employment exit even 2 or more years after this traumatic event. Our findings imply that policies encouraging entrepreneurship should also carefully consider the nonmonetary implications of business failure. [ABSTRACT FROM AUTHOR]

We provide the first analysis of management turnover and ownership change as determinants of post-bankruptcy failure of small businesses. Examining micro-level data on Slovenian firms that attempted bankruptcy reorganization and utilizing multiple empirical approaches, we find that changes prior to completed reorganization proceedings never reduce, and in the case of foreign incoming owners or insider incoming managers in fact increase, prospects of firm liquidation. Firm liquidation prospects robustly decrease only with changes that occur after completed proceedings, involve ownership transfer, and feature domestic incoming owners. These results continue to hold under an alternative conceptualization of firm failure. Our findings are consistent with the importance of disruption costs in the process of turning around ailing small businesses. Our analysis casts novel light on the ongoing debate about the consequences of debtor-in-possession rule in bankruptcy and the relevance of successor origin in management turnover and ownership change for firm outcomes. [ABSTRACT FROM AUTHOR]

Despite the significant role played by serial entrepreneurs in the entrepreneurial process, we know little about group differences in reentry decisions after business failure. Using an ecosystem framework and stigma theory, we investigate the variance in gender gaps related to the reentry decisions of 8171 entrepreneurs from 35 countries who experienced business failures. We find evidence of persisting gender gaps that vary across ecosystem framework conditions of public stigma of business failure and public fear of business failure. Our findings shed new light on ecosystem inefficiencies that arise from multiple interactions between entrepreneurs and institutions. [ABSTRACT FROM AUTHOR]

How does the age of serial entrepreneurs influence re-venture speed after a business failure? The prevailing notion is that the older the entrepreneur, the lower the likelihood of starting a re-venture. However, in real-world practice, many older entrepreneurs start to re-venture quickly after a business failure, and this phenomenon still cannot be explained by present research on the subject. This study takes the age of serial entrepreneurs, the failure loss and family support as the antecedent variables that affect re-venture speed. The direct impact of an entrepreneur's age is also moderated by failure loss and family support. A total of 268 serial entrepreneurs with business failure experience located in the Bohai Economic Rim of China were included in the study. The results showed that the older the serial entrepreneur, the longer the time taken to start a venture again. Additionally, the larger the failure loss, the slower the re-venture speed. Finally, the relationship between a serial entrepreneur's age and re-venture speed strengthens when the failure loss is large and weakens when family support is strong. [ABSTRACT FROM AUTHOR]

We examine how failure ascriptions (how the core causal characteristics of a failure are identified) impact perceptions of learning, defined here as the ability to transfer knowledge from a failed venture to a subsequently started new venture. Our findings are consistent with prior work in that internal unstable failure ascriptions are associated with greater perceived learning, while external stable ascriptions are associated with less perceived learning. Inconsistent with prior work, however, we find that starting a new venture more quickly after failure enhances perceived learning for entrepreneurs who made internal unstable ascriptions. Further, entrepreneurs with external stable ascriptions have even less perceived learning when they abandon their previous domain in their new venture. Implications for research on failure, ascriptions, and perceived learning for future ventures are discussed. [ABSTRACT FROM AUTHOR]