Small Business Failure Rates: Choice of Definition and Industry Effects

Abstract

DR. JOHN WTXSON IS A SENIOR Lecturer IN the Department of Accounting and Finance and Dr. Jim Everett an Associate Professor in the Department of rinformation Management and Marketing, both at the University of W'esterin Australia, Australia. Results froin pre v ious studies examining the incidence of smiall business failure have reported significant variations in failure rates betxveen industry sectors. Indeed, the results from some studies are in direct coniflict. For example, Lowe, McKenna and Tibbits (1991) reported that the manufacturing sector had the highest failure rate while Bruderi, Preisendorfer H/ (d! (1992) and Phillips and Kirchoff (1989) fotund that the manufactuiring sector had the highest survival rate. Th-e significarnt variations in reported failul-e rates and the apparent conflict between th-ie findings of some studies must surelv be a souti-ce of some confusion for policx- tiiakers and others with an interest in the smiall businiess sector. The results of this sttldx su-ggest that reported failure rates iiiay (lepend heavily on the definition of tfailtui-e adopted. A better understanding of the effect that choice of failuire definiitioni may have on reported failur e rates sh(ould lead to improved policy de isions bv governments, financial instituitions an1d othtie grotips xsNitll mt11 interest in smIiall l)usilICss.