Identidad entre el Sujeto y la Información

There is a growing body of research that analysed the determinants and the survival of new business creation in the U.K. (see for example Ganotakis, 2010). Likewise, there is evidence that there are regional effects within the UK which affect new business creation (see for example Fotopoulos, 2013; Keeble and Walker, 1994). Region-specific characteristics may be different whereas start-up costs may vary considerably between regions in a country (Gries and Naude, 2008). Moreover, there appears to be a distinctive regional variation in the industries of new firms (Keeble and Walker, 1994). Similarly, Buenstorf and Klepper (2009) found evidence that firms located in regions with more concentrated economies have fewer probabilities of exit since they suggested that the most productive firms located in these regions are less vulnerable to economic shocks. Buehler et al (2012) also noted that culture could vary across regions and that can affect the attitude towards failure and consequently the bankruptcy rates. At the UK level, most of the underlying rationale for any regional effects on business creation is related to the fact that most small firms created in British regions and countries aim to serve the local population, especially during their first few years of operation (Love, 1996). However, there appears to be a link between new firm creation within a region and firm exit (defined as any business closure and including but not limited to failure). In particular, evidence from the literature suggests that business entry rate is affected by the exit rate of firms within a UK

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region. Most importantly for the purposes of this study is the evidence that business exits are influenced by business entry rates and changes in unemployment rates whereas the local economic infrastructure may also be important (Love, 1996). Moreover, the economic and business environment determinants of firm exits appear to be broadly similar with the determinants of new business formation. This is the case because the same geographical areas that have certain environment characteristics that support new business formation have also a higher population of new firms. These are prone to fail on average three years after their formation due to their young age (Keeble and Walker, 1994). In that sense an element of endogeneity in the entry-exit relationship of firms in a certain geographical area potentially exists.

Most of the studies mentioned above focus on the business environment as the key determinant of business generation and failure within a certain geographical area in the same way as the national and regional business failure literature. In particular, the unemployment rate, local GDP, household disposable income, the local population change and the potential impact of net migration are all economic factors that have been associated with the local business environment which affects business creation and exits at a regional level (Keeble and Walker, 1994; Love, 1996).

From the firm-specific perspective, the age and size of the firm are two determinants that have been associated with the link between firm entry, exit and also failure as per this study’s definition. The literature evidence around firm failure suggests that new firms are prone to fail due to an inverse relationship between a firm’s age and failure propensity (Dunne et al., 1988) particularly after their first two years of existence which is often described as a “honeymoon period” and up to their seventh year of survival (Wilson et al., 2014). As the probability of failure is larger in new firms, the age distribution of firms’ population becomes an important determinant of failure with an impact in regions with a high percentage of new firms. As such, regions that have high new business growth will have a higher percentage of exits or VAT de-registrations as well (Lane and Schary, 1991; Keeble and Walker, 1994). Likewise, most new firms tend to be small and that has adverse consequences with regards to their failure propensity (Love, 1996).

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The current literature has therefore provided some evidence on the relationship between new business formation and firms’ exit at a regional level by considering elements of the local business and economic environment. However, findings related to business exits (see for example Love, 1996) should be interpreted carefully as a firm’s exit (for any reason, including but not restricted to failure) can happen for reasons not related to financial difficulties. In fact, if a firm ceases trading for reasons not related to failure and given that SMEs tend to serve the local market mostly, then it is quite possible that new firm(s) are created so as to fill that gap in the local market.

On the other hand, firms’ exits for reasons including failure can be interpreted as a sign of a very competitive market where only the most efficient firms can survive but at the same time they can be viewed as a sign of market weakness in the sense that the market is not strong enough to support many firms (Love, 1996). Moreover, whereas a number of regional economic factors have been analysed as co-determinants of the entry-exit link, the evidence on the this link is less substantive and is focusing at the macro-level. At the same time, it approaches the firm failure as an event (that is, an active firms fail or exit the market) but not as a process where a firm may first enter into financial distress before it fails. Therefore the link between new firms’ entry and failure at a regional level need further investigation as prior researches were based on fairly old evidence.

The determinants of new firm creation at a regional level and firm exits at UK regional level have been shown to have some contradictory findings. On one hand, they have been identified as being non-time variant. In a study of the determinants of firm entry and exit in the UK regions from 1994-2007 Fotopoulos (2013) found evidence that both the determinants and also the inter-regional variations remained time-persistent. This finding implies that any efforts to boost small firms at a local level may not necessarily be successful given that the entry-exit link is associated with time-persistent determinants. On the other hand, recent evidence from UK regions suggested that there was a temporary regional variation during the first period of the financial crisis in the performance of the firms possibly due to differences in the industry composition that different UK regions have (Martin et al, 2016).

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In the context of alternative firm failure processes within the UK regions, one can assess whether the percentage of new firms in a region could be a determinant of firms’ transition to failure in some or all the firm failure processes. The percentage of new firms in a region is not a firm-specific characteristic. Instead it is a business environment characteristic. As such it cannot be used as a key characteristic to identify alternative firm failure processes. However, one can argue that the percentage of new firms in a region is effectively part of a region’s business environment and as such the identification of the alternative firm failure processes may result in processes that include firms from business environments that differ on that aspect. This leads to the next hypothesis:

Hypothesis 7: The number of new firms as a percentage of the existing business

population in a UK region differs between the alternative firm failure processes in UK firms; it is also a determinant of firms’ transition to failure.