RIETI Report July 2020

What Are the Effects of the COVID-19 Crisis on Firm Exit in Japan?

The declining and aging population in Japan presents significant challenges to the economy as aging business owners attempt to find successors in an environment with less young entrepreneurs that are interested or qualified for the task. Senior Fellow Yukiko Saito joins Gee Hee Hong and Shinnosuke Kikuchi from the IMF to examine the bankruptcy, merger and voluntary exit trends that have manifested in the Japanese economy in this initial stage of the COVID-19 pandemic and how this new situation has compounded the existing challenges.

This month's featured article

What Are the Effects of the COVID-19 Crisis on Firm Exit in Japan?

Gee Hee HONGIMF

KIKUCHI ShinnosukeMIT

SAITO YukikoSenior Fellow (Specially Appointed), RIETI

The COVID-19 shock has posed a significant threat to business survival of Japanese firms, especially small and medium-sized enterprises (SMEs) that are dominantly present in those sectors that are most vulnerable to reduced mobility due to containment measures. Using a unique firm-level data with information on firm exits of Japanese firms, we find that total number of firm exits from January to May this year rose by 16 percent relative to last year, driven by voluntary exits rather than bankruptcies. This suggests that at least in the initial phase of the pandemic, pre-existing structural issues of Japanese SMEs regarding the difficulties of business continuation—involving aging business owners without business successors exacerbated by the COVID-19 shock—triggered elderly business owners to quit their businesses, even, in some cases, exiting firms that were solvent.

To read the full text
https://www.rieti.go.jp/en/columns/a01_0607.html

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