small business bankruptcy

small business bankruptcy - Journal of Small Business...

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CARTER AND VAN AUKEN 493 Journal of Small Business Management 2006 44(4), pp. 493–512 Small Firm Bankruptcy by Richard Carter and Howard Van Auken From the results of a survey we compare the demographics and potential problem situations of 57 bankrupt ±rms to 55 nonbankrupt ±rms in an attempt to identify root causes of bankruptcy. Results indicate that the most serious problems of bank- rupt ±rms can be condensed into three categories: lack of knowledge, inaccessibility to debt, and economic climate. Bankrupt ±rms also appear to be older, more likely to be in the retail industry, and organized as proprietorship or partnership than non- bankrupt ±rms. They are also less likely to use the Internet in their business opera- tions than the nonbankrupt ±rms. One surprising ±nding is that while both subsamples found knowledge important, the nonbankrupt sample found it signi±- cantly more important than the bankrupt ±rms. This evidence provides insights for governments and academic institutions in their efforts to provide resources that may help reduce the incidence of bankruptcy, especially during times of declining economic health. Introduction The small business sector is often viewed as the incubator of employment, innovation, and growth (Craig, Jackson, and Thomson 2003). Despite their impor- tant contributions to economic vitality, bankruptcy and failure continues to be an important issue affecting small Frms. The contributions of the small business sector of the U.S. economy have been documented and discussed. To some extent, bankruptcy among Frms is part of the creative self-destruction phenom- ena that contributes to the dynamics of innovation and economic renewal (Timmons and Spinelli 2004). Bank- ruptcy, however, is disruptive and costly to owners, investors, and communities. Issues related to the affects of bank- ruptcy are even more relevant when bankruptcy rates are increasing. This paper reports on a survey of bankrupt and nonbankrupt Frms in the state of Iowa. The survey was isolated to a single state in order to ensure efF- ciency of data collection and to minimize Richard Carter is professor of Fnance, College of Business, Iowa State University. Howard Van Auken is professor of management, College of Business, Iowa State University. Address correspondence to: Richard Carter, 3333 Gerdin Business Building, Iowa State Uni- versity, Ames, IA 50011. Tel.: 515-294-9438. E-mail:
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extraneous variables. The study exam- ines and compares the impact of busi- ness problems among 57 small Frms that declared bankruptcy and 55 nonbank- rupt Frms. The importance of small Frms to community economic viability, owners and their families, customers, and suppliers suggests that factors im- pacting bankruptcy are important to understand. The dynamic nature of the U.S. economy as well as differences among regions and industries make bankruptcy studies a continuing impor- tant research topic.
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This note was uploaded on 06/02/2011 for the course AK 3920 taught by Professor Jonkerr during the Winter '10 term at York University.

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small business bankruptcy - Journal of Small Business...

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