Why Do Most Firms Die Young?

Here is an abstract of an interestinmg article on the topic...

A theoretical model of firm growth under uncertainty is developed in order to account for the high failure rate of young firms. This model pulls together several strands of the existing literature, including: the portfolio approach to balancing risk and return; a variation on Gibrant's law as a description of the growth process, and human capital as a determinant of entrepreneurial productivity.

Consistent with the observed firm failure distribution, the model suggests that the failure rate first rises steeply and then tails off to a low, long run value. Simply put, the model points to an early death for most firms. One explanation for the initial rise in the failure rate is the depletion of initial financial resources as a result of trading losses and bad luck. The model emphasizes the importance of risk in firm failure. However, closure under risk is modeled as a rational decision by the entrepreneur.

Source:

Cressy, Robert
Why do most firms die young?
Small Business Economics. 2006.
v. 26, no. 2, p. 103-116.