Population Aging and Small Business Dynamics

This paper uses a large sample of small and medium-sized enterprise financial data (2008-2019) to empirically analyze the effect of a prefecture's population aging on successions, mergers, suspensions/closures, and bankruptcies. The higher the proportion of the population aged 65 and over, the more serious the problem of finding successors for small businesses, that is, the decline in the turnover of aged business owners occurring through succession. Compared to inherited small and medium-sized enterprises, bankrupt enterprises, closed enterprises, and acquired enterprises tend to suffer from poor performance and sales. Companies that suffer from sluggish sales or poor performance go bankrupt, close, or merge; in other words, the metabolism of small and medium-sized enterprises also slow down as the population ages, not only impeding small business metabolism, but also performance— profitability, investment and growth rates--decline with increases in the population aged 65 and older. On the other hand, cash holdings of small businesses increase with population aging, likely because of increases in precautionary liquidity demand in preparation for future business closures.