An economic policy wanting to maintain high incentives for innovation activity and creativity of firms by a steady competition must be interested in a dynamic development of business formation activities and, therefore, must make the conditions for start-ups as good as possible. However, particularly during the first years after start-up the probability of failure is relatively high for many young firms, thus guaranteeing that the young firms disappear from the market again. The goal of this research project is to identify the structures and determinants leading to an early failure of firms and to submit proposals for the economic policy, how to create the general conditions for young firms in order to ensure a high survival rate.
A number of very different reasons can lead to a closure of a (young) firm. Thus, a closure of a firm cannot always be equated with a failure. Often a failure is defined on the basis of the facts of the insolvencies; however, this definition does not go far enough for various reasons. Therefore, this project offers an analysis of the causes for the market exit of firms which have dropped out of the market via insolvency proceedings as well as those which have left the market „voluntarily“.
The project is composed of four modules. In module 1 a representative telephone survey among entrepreneurs who abandoned a business is conducted. On the basis of this survey, the causes for the exit are defined from the point of view of entrepreneurs who are not successful. However, the perspective of persons who have exited unsuccessfully with their firms possibly provides a biased view on the failure reasons, since entrepreneurs who have failed rarely blame themselves for the failure. Thus, in module 2 failed and survived firms are compared regarding firm-specific characteristics in the year before the firms’ drop out of the market. The empirical results are subject to a qualitative assessment by means of discussions within the scope of a focus group (module 3) and are reflected on the results of international studies (module 4). The project concludes with an overall evaluation of the causes for the failure of firms and recommendations for the policy derived from the evaluation.

Selected Publications