The Shadow of Death: Pre-exit Performance of Firms in Japan

This paper examines the pre-exit productivity performance and asks how productivity affects future survival, controlling for firm size and unobserved firm heterogeneity. Based on firm-level data in Japan for 1995-2002, we found that firms did not face "sudden death" but there was a "shadow of death." Future exiting firms had lower performance five years before their exit. Moreover, unobserved firm heterogeneity had a statistically significant effect on firm survival analysis. However, we also found that the effects of unobserved heterogeneity were not very large and thus did not reverse the conclusion.