Small Firm Bankruptcy


Richard Carter, 3333 Gerdin Business Building, Iowa State University, Ames, IA 50011. Tel.: 515-294-9438. E-mail:


From the results of a survey we compare the demographics and potential problem situations of 57 bankrupt firms to 55 nonbankrupt firms in an attempt to identify root causes of bankruptcy. Results indicate that the most serious problems of bankrupt firms can be condensed into three categories: lack of knowledge, inaccessibility to debt, and economic climate. Bankrupt firms also appear to be older, more likely to be in the retail industry, and organized as proprietorship or partnership than nonbankrupt firms. They are also less likely to use the Internet in their business operations than the nonbankrupt firms. One surprising finding is that while both subsamples found knowledge important, the nonbankrupt sample found it significantly more important than the bankrupt firms. This evidence provides insights for governments and academic institutions in their efforts to provide resources that may help reduce the incidence of bankruptcy, especially during times of declining economic health.