Risk, Capitalization and Survival of Young Firms: Empirical Survey on Italian Companies

Young businesses are very vulnerable during first stage of life. There are many causes that can lead to premature extinction of companies. The purpose of this paper is to verify if the level of risk that enterprises face in their first year of life affects their survival. To this end, an empirical survey has been carried out on Italian companies established in 2009, 2010 and 2011. In order to reduce the influence of under capitalization on the survival of the firms in the first stage of life, only companies with a share capital ≥ €50,000 were included in the sample. Furthermore, only companies not belonging to a private or public group were included in the sample. This is to in order to eliminate the influence of the financial strength of the public and/or private holding on the survival of the companies examined. The study has highlighted that these companies with a strong capitalization (with a share capital ≥ €50,000) have very high survival rates at five years; furthermore, their survival is not affected by an operating and financial risk higher than average. Therefore, the high vulnerability rate of young firms seems to be mainly caused by under capitalization rather than the risk rate they face