Firms are at the greatest risk of failure when they are
young and small. Beyond an early peak in mortality
rates, often described as the liability of adolescence,
exit rates monotonically decline to a positive asymptote
(Carroll 1983, Freeman et al. 1983, Sorensen and Stuart
2000). While much prior research has focused on the
age-mortality relationship, the mechanics of firm failure
remains an understudied phenomenon (Baldwin et al.
1997, Bruderl et al. 1992, McGrath 1999). Given that
the incidence of exit varies as a function of firm age,
what is it about firms at different ages that leads to the
observed pattern of failure?