High-Tech Business Survivorship: An Analysis By Organization Type

Abstract

Previous studies have shown that organizational and environmental factors such as start-up size, number of establishments, start-up year, geographic location, and industry are all significant determinants of a business’s survival rate. However, the link between survival rates and the legal structure of businesses has not been established. This analysis of new and existing high-tech businesses between the years of 1998 and 2009 reveals that given the same organizational characteristics and environmental factors, businesses legally structured as sole proprietorships and partnerships had significantly lower survival rates than did businesses structured as corporations or other organization types. Corporations had the lowest mortality rate among all groups. In comparison, partnerships exited at a 50 percent higher rate than did corporations, while sole proprietorships exited at twice the rate of corporations. This paper models hazard rates over the lifetime of a business and shows that businesses tend to have the highest mortality rates in their second and third years of operation, after which exit rates decrease at a logarithmic rate. Sole proprietorships, however, do not follow this trend as their mortality rate was highest in their first year of operation. In addition, impacts on survivorship of high-tech businesses due to start-up size, number of establishments, industry, and location are measured and compared with findings from previous studies.