Acquisition, Involvency and Managers in UK Small Companies

This paper investigates the importance of managerial capital to involuntary insolvency and acquisition in UK small and medium-sized companies. Given that small businesses are informationally opaque and lack detailed financial data, the role of non-financial factors such as managerial capital has been emphasised. Although the role of managers in determining small firms' longevity has received considerable attention, much of what has been written is concerned with businesses trading as either sole proprietors or partnerships. In this study we draw attention to the effect of managerial human capital and whether these findings generalise to incorporated small firms. In addition, we examine whether the determinants of exit exhibit significant differences across acquisition and insolvency. Using data from the survey database of the ESRC CBR at the University of Cambridge our results indicate that firms run by managers with higher human capital and intentions to pursue a strategy of growth have greater survival prospects and are less likely to be forced into insolvency or become acquired. In addition, the relevance to exit of firm age, firm size, and financial variables is confirmed.