This paper attempts to fill the gap in the literature by reviewing the scholarly research of firm death, especially the case of sudden death. Based on a critical review of the literature regarding the antecedents, types, and processes of firm death, we suggest avenues for future research in this arena and elaborate on the relevant methodological concerns.
For the purpose of this research, we adopt the following working definition of firm death: the disappearance, both nominally and substantively, of a business entity, either a self-contained, stand-alone unit or an entire corporation. As such, as a variation in either combination or degree of the above two dimensions, there might be real death, quasi-death, semi-death, or pseudo-death. Some firms are zombies, having substantively ceased functioning but remaining nominally alive. Others could be intentionally courting or securing nominal death while substantively operating as the same entities for tax or other purposes. Still others could be straddling around the death line waiting to go away naturally or hoping for an eventual turnaround. That is, firm death could be either voluntary or involuntary, or even indifferent. The typical form of death includes bankruptcy, liquidation, exit, or M&A.
As for the antecedents of death, causes could be found both in the external environment, and inside the firm. Regarding the processual characteristics of firm death, it could be a prolonged gradual death, or a sudden and abrupt event. While prolonged death might result in gradual declines in vital operational and financial indices, sudden deaths are often caused by insufficient cash flows, broken social/political ties, or totally unexpected extreme external events.
We suggest that future research on this topic should penetrate deeper into the intentions and motivations of firms in coping with their survival as well as death. When do firms voluntarily court death or at least partial death? How to detect that firm deaths are individual cases or collective phenomena? What are the relationships between the death of a firm or business and the death of an industry or a segment within an industry? Are there any discernible patterns of firm death in the different stages of industry life cycle? How are the entrepreneurial firms different from firms in mature or declining industries when it comes to the determinants and patterns of death? Are firm deaths or failures bad for the economy? What are the potential benefits, if any, of firm deaths?
Multiple theoretical perspectives are needed to fully examine and dissect the complex phenomenon of firm death at different levels of analysis, from business, firm, industry, to the concerned eco-system, covering both micro-foundations as well as macro-manifestations, comparing and contrasting firms from emerging economies where institutional environments are often relatively weak and underdeveloped and are in constant flux, with firms from more developed economies where institutional environments are more mature, formal and advanced. Multiple research methods are also called for in our search for better understanding of firm death in terms of observable patterns and consequences as well as underlying intensions and mechanisms.