THE ROLE OF MANAGEMENT DECISIONS IN EXPLAINING FIRM MARKET EXIT

We study factors of firm market exit and focus on the role of the firm’s management. We assume that the quality of decisions made by the firm’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 firm market exit and hypothesise that the characteristics of the macroeconomic environment influence the impact of technical and cost efficiency on firm market exit. This is why we study whether the importance of decisions that are relevant for attaining technical efficiency and decisions that contribute to cost efficiency for firm market exit depend on the macroeconomic environment of the analysed firms. Such an analysis reveals which types of managerial decisions are relevant for firm market exit in differing macroeconomic environments. We use a logistic regression for rare events to estimate non-nested microeconomic models of firm 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 efficiency are more likely to exit the market. Even though a firm’s management plays many relevant roles within the firm, our research demonstrates that those management decisions that refer to input selection and their substitution are those which are most crucial for preventing a firm from failing and ensuring its survival. We also find that in differing macroeconomic environments different types of management decisions explain firm market exit. The results show that technical efficiency has a more significant influence on a firm’s market exit compared to cost efficiency in a favourable macroeconomic environment, while cost efficiency has a more significant influence on a firm’s market exit than technical efficiency in unfavourable macroeconomic conditions.