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While patents are a valuable resource ensuring the competitive advantage of firms, there is limited evidence on the role of patents in the survival and exit strategies of new firms. To fill the gap in the literature, we examine whether the effects of patenting on new firm survival vary according to exit routes (bankruptcy, merger, and voluntary liquidation), while considering the endogeneity of patenting. We use a large-scale sample of new firms in the Japanese manufacturing and information services sectors for the period 2003–2013. The findings indicate that new firms with a higher stock of patents are less likely to go bankrupt. Conversely, new firms with a higher stock of patents are more likely to exit via merger. These findings are consistent, regardless of whether patent stock is measured based on the patent applications or granted patents. Furthermore, we provide evidence that new firms with a higher stock of granted patents are more likely to voluntarily liquidate their businesses.Plain English SummaryCan new firms enjoy a “patent premium” in terms of survival and exit outcomes? The findings of this study indicate that (1) patenting reduces the risk of bankruptcy, and (2) it increases the odds of exit via merger and voluntary liquidation. On the one hand, patenting ensures that new firms obtain competitive advantages, and thus, survive in the product market. On the other hand, it enables new firms to pursue successful exit strategies in the markets for ideas. This study concludes that new firms can enjoy a patent premium in terms of survival and exit outcomes. In promoting sustainable economic growth via entrepreneurship, policymakers need to shift their focus from creating more firms to creating innovative firms.

Recessions often happen after periods of rapid accumulation of houses, consumer durables and business capital. This observation has led some economists, most notably Friedrich Hayek, to conclude that recessions often reflect periods of needed liquidation resulting from past over-investment. According to the main proponents of this view, government spending or any other form of aggregate demand policy should not be used to mitigate such a liquidation process, as doing so would simply result in a needed adjustment being postponed. In contrast, ever since the work of Keynes, many economists have viewed recessions as periods of deficient demand that should be countered by activist fiscal policy. In this paper we reexamine the liquidation perspective of recessions in a setup where prices are flexible but where not all trades are coordinated by centralized markets. The model illustrates why liquidations likely cause recessions characterized by deficient aggregate demand and accordingly suggests that Keynes’and Hayek’s views of recessions may be closely linked. In our framework, interventions aimed at stimulating aggregate demand face a trade-off whereby current stimulus postpones the adjustment process and therefore prolongs the recessions, but where some stimulative policies may nevertheless remain desirable.

We develop an infinite horizon macroeconomic model of banking that allows for liquidity mismatch and bank runs. Whether a bank run equilibrium exists depends on bank balance sheets and an endogenous liquidation price for bank assets. While in normal times a bank run equilibrium may not exist, the possibility can arise in recessions. A run leads to a significant contraction in intermediation and aggregate economic activity. Anticipations of a run have harmful effects on the economy even if the run does not occur. We illustrate how the model can shed light on some key aspects of the recent financial crisis.

This paper investigates the consequences of liquidation and reorganization on the allocation and subsequent utilization of assets in bankruptcy. Using the random assignment of judges to bankruptcy cases as a natural experiment that forces some firms into liquidation, we find that the long-run utilization of assets of liquidated firms is lower relative to assets of reorganized firms. These effects are concentrated in thin markets with few potential users and in areas with low access to finance. These findings suggest that when search frictions are large, liquidation can lead to inefficient allocation of assets in bankruptcy.

Insolvency practitioners from 88 countries describe how debt enforcement will proceed against an identical hotel about to default on its debt. We use the data on time, cost, and the likely disposition of the assets (preservation as a going concern vs. piecemeal sale) to construct a measure of the efficiency of debt enforcement in each country. This measure is strongly correlated with per capita income and legal origin and predicts debt market development. Several characteristics of debt enforcement procedures, such as the structure of appeals and availability of floating charge finance, influence efficiency.

We investigate the corpus of literature on firm exit by means of a systematic literature review (SLR) which yields a final sample of 142 journal articles for the period 1991–2020. The phenomenon of firm exit is explored from a variety of perspectives: business exit; exit at the individual entrepreneur level; exit from specific markets; exit from foreign markets; and the role of exit for industrial dynamics conceived more broadly. Special attention is given to the various exit routes, including voluntary liquidation, mergers and acquisitions (M&A), initial public offerings (IPO), and of course bankruptcy. The SLR sets the scene for the Special Issue papers that are presented towards the end, and we conclude with some suggestions for future research.The Plain English Summary This article develops a systematic literature review around three decades of firm exit research, patterns, developments, and intriguing gaps. In this paper, we systematically review 142 studies on firm exit from various perspectives, identify major patterns, and outline the debate around firm exit. We propose reflections useful for scholars willing to engage in firm exit research in the future and set the scene for the special issue papers. Overall, this work shows the remarkable progress made in the area of firm exit that has evolved from the view of exit as a homogenous event signaling failure to a vision of exit as a heterogenous event. Exploring the sources of heterogeneity of exits from various perspectives could offer promising paths for future research.

Research has recently emphasized that the non-survival of entrepreneurial firms can be disaggregated into distinct exit routes such as merger and acquisition (M&A), voluntary closure, and failure. Firm performance is an alleged determinant of exit route. However, there is a lack of evidence linking exit routes to their previous growth performance. We contribute to this gap by analyzing a cohort of incorporated firms in Japan and find some puzzles for the standard view. Our empirical analysis suggests that sales growth generally reduces the probability of exit by merger, voluntary liquidation, and also bankruptcy. However, the relationship is U-shaped—such that rapid growth actually increases the probability of exit. More generally, each of the three exit routes can occur all across the growth rate distribution. Large firms are more likely to exit via merger or bankruptcy, while small firms are more likely to exit via voluntary liquidation.

This study explores the impact of initial debt financing on the survival of start-up firms by identifying three types of exit routes: bankruptcy, voluntary liquidation, and merger. Using a discrete-time duration model for Japanese start-up firms, we examine how debt financing affects the time from founding to exit. We find that firms that initially rely on debt financing from outside creditors are more likely to go bankrupt and that long-term debt, rather than short-term debt, is significantly associated with the time to exit due to bankruptcy. In contrast, such firms are less likely to liquidate voluntarily, and a lower long-term debt ratio is associated with a shorter time to voluntary liquidation. Moreover, they are less likely to exit via merger, and a lower long-term debt ratio is associated with a shorter time to exit via merger. Furthermore, the likelihood of bankruptcy, unlike voluntary liquidation and merger, is influenced by macroeconomic conditions. Plain English Summary Does initial debt financing determine the exit routes of start-up firms? Debt financing plays a prominent role in raising funds for small and medium enterprises, especially in bank-centered economies such as Japan. We examine the impact of debt financing on the exit routes of start-up firms by focusing on debt financing from outside or inside the firm. The results reveal that reliance on long-term debt financing from outside creditors increases the likelihood of bankruptcy while decreasing the likelihood of voluntary liquidation and merger. Our findings suggest that reliance on long-term debt financing from outside creditors constrains a firm’s strategic options due to ongoing payment requirements and leads to a loss of flexibility in decision-making. Such initial funding dominates the exit routes of firms.

The entry and exit of products, rather than firms, serve as the main equilibrating force in many markets, so accurately predicting changes from a merger or bankruptcy should incorporate this behavior. This paper estimates a structural model of the US commercial vehicle market and demonstrates the importance of allowing for endogenous product offerings in the context of the $85 billion automotive industry bailout in 2009. Under alternate policies that facilitate an acquisition or liquidation of GM and Chrysler, product entry and exit moderate markup increases and output decreases by up to three-quarters.

This paper studies predatory trading, trading that induces and/or exploits the need of other investors to reduce their positions. We show that if one trader needs to sell, others also sell and subsequently buy back the asset. This leads to price overshooting and a reduced liquidation value for the distressed trader. Hence, the market is illiquid when liquidity is most needed. Further, a trader profits from triggering another trader's crisis, and the crisis can spill over across traders and across markets.