Time to exit: “revolving door effect” or “Schumpeterian gale of creative destruction”?

Abstract

Over the past decades, exit has been analyzed at the theoretical and empirical levels. From this rich series of contributions, two basic patterns of exit can be identified: the revolving door and the gale of creative destruction. In the first, the liability of newness plays a major role in the exit process, while in the second the displacement of non-innovators is the driver of exit. We have tested these two patterns of exit on the population of Dutch firms that exited in 2018. We find confirmation that the two patterns characterize different types of industries. In industries in which innovation does not play a major role, the revolving door effect is the typical pattern and exit is concentrated among the adolescent firms. These firms are also small in size. On the contrary, in industries in which innovation plays a role, exit takes place both among infant as well as mature firms. Exiters are not necessarily only the smaller firms. While a highly innovative and uncertain environment can threaten the survival of infant firms, the exit of mature firms is driven by the innovation of young firms, following the gale of creative destruction.