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On the Turnover of Business Firms and Business Managers

Working Paper 545 | Published March 1, 1995

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James A. Schmitz, Jr. Senior Research Economist
Thomas J. Holmes Consultant
On the Turnover of Business Firms and Business Managers


This paper develops a model of small business failure and sale that is motivated by recent evidence concerning how the failure and sale of small businesses vary with the age of the business and the tenure of the manager. This evidence motivates two key features of the model: A match between the manager and the business, and characteristics of businesses that survive beyond the current match. The parameters of the model are estimated, and the properties of this parametric model are studied. This analysis results in a simple characterization of the workings of the small business sector.

Published in: _Journal of Political Economy_ (Vol. 103, Issue 5, October 1995, pp. 1005-1038),
Published in: _Innovation, Evolution of Industry and Economic Growth_, D. B. Audretsch, S. Klepper, Eds., (Vol. 2, 2000, pp. 29-62).