Disentangling entrepreneurial firm exits and failures

The entry and exit of firms is indicative of a competitive dynamism which signals a positive economic structure. Relative ease of entry and exit is seen as necessary for economic growth. Entrepreneurship is a common means of entry and, despite the efforts and intentions of the entrepreneurs, some new firms will discontinue their activities either by choice or by necessity, due to misalignment of expectations and realized outcomes.

Reported high rates of entrepreneurial firms’ exit labeled as failure have created a stigma, which is believed to have negative impact on entrepreneurship activities. Despite the general tendency in entrepreneurship discourse to associate firm discontinuance with failure, not all discontinuances have the generally expected negative consequences.
The paper explores the phenomenon of entrepreneurial firm exit as a way to disentangle negative and non-negative consequences associated with such noted failure events as bankruptcy. Analyzing the activities leading up to the declaration of bankruptcy and following the process beyond that critical event helps to identify and explain non-negative outcomes and raises the question of when should an entrepreneurial exit be labeled as failure.