The Process of Entry, Exit and Transfer in the Small- Business Sector

This project will study the process of turnover in the small business sector. The work departs from previous research in that rather than treating the business firm alone as the unit of analysis, the business firm and the owner are considered together. Thinking this way leads to a consideration of another aspect of firm turnover which has received little attention in the literature on small businesses, namely, the movement of businesses across owners. The project will employ a new data set collected by the Census Bureau called the Characteristics of Business Owners Survey. The first part of the project will be an unstructured approach to uncover the basic patterns in the data with respect to business turnover. The second part is to develop a theory which successfully organizes the data in the sense of being capable of matching the most significant patterns. The model to be developed will combine two search processes. The first is the search for good matches between businesses and business owners. The second is the search for businesses of high 'general' quality. The small business sector represents a nonnegligible portion of all economic activity in the United States. Census figures show that 23 percent of all employment in 1982 was accounted for by firms with 19 or fewer employees. Understanding the characteristics of these businesses is important for estimating the impact of government policies, especially the treatment of capital gains and other tax policy issues.