The risk of death in newborn businesses during the first years in market

TL;DR

This study investigates the mortality risk of newborn businesses in their first five years, applying survival analysis techniques and probabilistic models to U.S. data, revealing a generally decreasing failure rate with age.

Contribution

It adapts classical survival analysis methods and compares multiple probabilistic models to better understand early business mortality patterns.

Findings

Failure rate generally decreases with business age.

Risk can temporarily rise during initial months.

Models fit well with decreasing hazard functions.

Abstract

In this paper, we analyzed how business age and mortality are related during the first years of life, and tested the different hypotheses proposed in the literature. For that, we used data on U.S. business establishments, with 1-year resolution in the range of age of 0-5 years, in the period 1977-2016, published by the United States Census Bureau. First, we explored the adaptation of classical techniques of survival analysis (the Life Table and Peto-Turnbull methods) to the business survival analysis. Then, we considered nine parametric probabilistic models, most of them well-known in reliability analysis and in the actuarial literature, with different shapes of the hazard function, that we fitted by maximum likelihood method and compared with the Akaike information criterion. Our findings show that newborn firms seem to have a decreasing failure rate with the age during the first five years in market, with the exception of the first months of some years in which the risk can rise.