United States Small Business Administration

RS Number 122

PURPOSE

This study provides a descriptive overview of patterns in business survival rates and clarifies some of the factors influencing business survival rates. This study was purely empirical and was based on analyses of a sample of businesses existing in 1976. The sample data were drawn from the Small Business Data Base of the SBA's Office of Advocacy.

HIGHLIGHTS

Two findings clearly emerge from this study: (1) the older a business is at a given point in time, the more likely it is to survive over some finite time interval; and (2) the larger a business is at a given point in time, the more likely it is to survive over some finite time interval. These findings appeared from descriptive cross-tabulations, as well as more sophisticated statistical analyses. (See Tables 1 and 2, below.) Multi-establishment firms-that is, businesses that operate out of more than one location-had higher survival rates than single-establishment firms. There was no discernable relationship between geographic location and business survival rates. Businesses in the manufacturing and wholesale trade industry divisions exhibited higher than average survival rates. However, regression analyses failed to identify any isolated relationship between industry and survival rates. The observed relationship between macroeconomic activity and business survival rates was counter-intuitive. During the recession of the early 1980s, business survival rates actually rose, all other factors held constant. This finding may be aberrant, though, because the sample data spanned just one recessionary period.

Table 1. Business Survival Rates by Age Class

Age Class

(Years) 1978 1980 1982 1984 1986

0-2 0.769 0.562 0.493 0.404 0.344

3-4 0.719 0.521 0.471 0.399 0.347

5-9 0.716 0.567 0.522 0.453 0.402

0-19 0.739 0.624 0.585 0.520 0.469

20+ 0.741 0.639 0.601 0.539 0.488

Note: Table 1 shows the proportion of firms that were within

a given age class in 1976 that survived through 1978, 1980, 1982, 1984, and 1986.

Source: Business Survival Rates by Age Cohort of Business,
prepared for the Office of Advocacy, U.S. Small Business
Administration under contract no. SBA 4118-OA-89 by Joel
Popkin and Company, April 1991.

Table 2. Business Survival Rates by Firm Employment Size Class

Employment Size

Class 1978 1980 1982 1984 1986

1-4 0.662 0.475 0.433 0.358 0.309

5-9 0.810 0.692 0.639 0.570 0.512

10-19 0.858 0.763 0.707 0.644 0.586

20-49 0.880 0.794 0.732 0.670 0.610

50+ 0.892 0.810 0.749 0.689 0.628

Note: Table 2 shows the proportion of firms that were within

a given employment size class in 1976 that survived

through 1978, 1980, 1982, 1984, and 1986.

Source: Business Survival Rates by Age Cohort of Business,

prepared for the Office of Advocacy, U.S. Small Business
Administration under contract no. SBA 4118-OA-89 by Joel

Popkin and Company, April 1991.

SCOPE AND METHODOLOGY

This empirical study was based upon a sample of more than 4 million observations of businesses appearing in the U.S. Establishment Longitudinal Microdata (USELM) file in any of the file years between 1976 and 1986, inclusive-namely, 1976, 1978, 1980, 1982, 1984, and 1986. The USEEM file is adapted from data leased from the Dun and Bradstreet Corporation. This research focused on a group of businesses existing in 1976. The two-, four-, six-, eight-, and ten-year survival rates of these businesses were examined through descriptive tabulations and two types of regression analyses. One type of regression analysis used grouped data-specifically, data grouped by age class, size class, region, and industry grouping into approximately 54,000 cells. This analysis attempted to explain the change in survival rates of businesses within cells between 1976 and 1986 on the basis of business size, age, geographic region, industry grouping, and business formation rates. The other type of regression analysis for this study used the sample microdata-that is, the unit observed was the individual firm. The objective of this regression analysis was to determine the relationship between a business' age, location, industry, size, etc., and its probability of dissolving.

Summary

This study revealed three factors affecting business survival rates. First, the more employees a business has, the more likely it will be to survive over some finite time interval. This also is true for older businesses and businesses that operate out of more than one establishment. The study found no other clear factors underlying business survival rates. Survival rates do not vary appreciably with geographic location, and although businesses in the manufacturing and wholesale trade industries appear to enjoy higher survival rates, regression analyses failed to identify any link between a business' industry and its survival prospects.

ORDERING INFORMATION

The complete report is available from:

National Technical Information Service

U.S. Department of Commerce

5285 Port Royal Road

Springfield, VA 22161

(800) 553-6847

Order number: PB92-160134 Cost: Pending





*Last Modified 6-11-01