The role of management decisions in explaining firm market exit

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Technická Univerzita v Liberci
Technical university of Liberec, Czech Republic
We study factors of fi rm market exit and focus on the role of the fi rm’s management. We assume that the quality of decisions made by the fi rm’s management can be assessed by the firm’s technical and cost efficiency levels. We argue that the decisions of management are an important determinant of fi rm market exit and hypothesise that the characteristics of the macroeconomic environment infl uence the impact of technical and cost effi ciency on fi rm market exit. This is why we study whether the importance of decisions that are relevant for attaining technical effi ciency and decisions that contribute to cost effi ciency for firm market exit depend on the macroeconomic environment of the analysed fi rms. Such an analysis reveals which types of managerial decisions are relevant for fi rm market exit in differing macroeconomic environments. We use a logistic regression for rare events to estimate non-nested microeconomic models of fi rm market exit in Slovenia for two periods characterised by differing macroeconomic conditions. The results confirm that firms in which decisions of management result in inferior effi ciency are more likely to exit the market. Even though a fi rm’s management plays many relevant roles within the fi rm, our research demonstrates that those management decisions that refer to input selection and their substitution are those which are most crucial for preventing a fi rm from failing and ensuring its survival. We also fi nd that in differing macroeconomic environments different types of management decisions explain fi rm market exit. The results show that technical effi ciency has a more signifi cant infl uence on a fi rm’s market exit compared to cost effi ciency in a favourable macroeconomic environment, while cost effi ciency has a more signifi cant infl uence on a fi rm’s market exit than technical effi ciency in unfavourable macroeconomic conditions.
banks, social responsibility, Croatia