Determinants of Business Exits in Australia

Abstract

The annually increasing firm exits have significant financial, legal and social impacts on productivity, employment and economic growth in Australia. However, evidence of the impacts of firm exits is sparse. This paper undertakes a first-ever study that empirically investigates the determinants and their impacts on firm churn. This paper is innovative to the literature in four aspects: (1) Local Region Areas (LGAs) data, rarely available in other countries, has been used for the analysis; (2) using LGAs as the basic analytical unit is able to eliminate the heterogeneity problems encountered by other studies which are based on national and cross-national data; (3) panel data modelling techniques identify robust evidence; (4) systematic statistical tests guarantees the robustness of the results. The dataset, provided by Australia Bureau of Statistics, include 3462 observations of 577 Local Government Areas (LGAs) during 2004-2009. The research identifies variables positively and negatively affecting the exits and finds that size matters in determining business exits. The last section concludes with a discussion of limitations and future research directions.