An Empirical Investigation of Factors Influencing Exit Intentions of Micro and Small Enterprises in India

Abstract

India is one of the fastest growing economies in the world and its socio-economic growth is tightly coupled with the growth of the micro, small and medium enterprise sector. Recognizing its potential in the nation’s development, the Government of India is increasingly strengthening the entrepreneurial ecosystem to promote start-ups and innovation-led growth in this sector. Despite these numerous supportmeasures, enterprise closure is prevalent andmost of the closed enterprises areMicro and Small Enterprises (MSE). Paradoxically the reasons for such closures are not known due to the unorganized and proprietorship nature of this sector. Research findings indicate that entrepreneurial exits have a substantial impact on future entrepreneurial activities in the country. These reasons necessitate the need to gain a better understanding of the exit decisions of IndianMSE owners. Existing research on entrepreneurial exit has primarily focused on the conceptualization of the exit phenomenon, identification of the motives and the exit strategy of the exiting entrepreneur, factors influencing exit intention, exit planning and timing, and the post-exit activities of the exited entrepreneurs. A large share of empirical studies has investigated the impact of various internal and external factors on firm exits in developed countries. Recently, researchers have shown interest in investigating the actual exit strategies adopted by the exited small business owners. A few studies have acknowledged that the intentions and motivations of the entrepreneurs affect their choice of exit strategy. These studies have empirically examined the influence of personal level triggers on the exit intention of small business owners using behavioural theories. Based on the literature review, it is found that the key factors influencing the choice of exit option still remain largely unexplored, particularly in the context of micro and small enterprises of developing countries. The existing research in this area is mostly of a qualitative and country-specific nature. Since the Indian business environment is different from that of other countries and since there is a lack of research on entrepreneurial exits in an Indian context, this study responds to the need of research in understanding the determinants of the exit intentions of Indian MSE owners. ii This research aims at empirically investigating the influence of individual, firm, and market environment related factors on various exit intentions of Indian MSE owners using the theory of planned behaviour. A questionnaire-based survey approach is used to collect the primary data for this study and hypotheses are tested on a sample size of 360 MSE owners having a working enterprise in industrial estates of Karnataka state. Statistical Package for the Social Sciences (SPSS) software is used to perform both descriptive and multiple regression analysis of the data obtained. The analysis has revealed that high human capital, strong psychological ownership, high firm performance, suitable firm location, severe market competition, low product demand is related to an entrepreneur’s intention to exit. Our results indicate that entrepreneurs with a high level of entrepreneurial skills and entrepreneurial experience demonstrate subsequent entrepreneurial re-entry intention. Incidentally, entrepreneurs with strong psychological ownership prefer to pass-on the firms to their family, since their psychological ownership negatively influences exit intention. Owners of high performing firms derive exit intention to harvest their past investment to pursue other activities. Strategic location of the firm influences the exit intention of the owner to reap maximum benefits through harvest sale. Owners who are facing unfavourable market conditions, namely severe market competition and low product demand, intend to opt for distress sale to avoid failure. Although this research contributes to entrepreneurial exit research, the results might also be of interest to the entrepreneurs and policymakers trying to understand the conditions leading to entrepreneurial exits.