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