Another Look at Business Accession and Separation Rates in Non-Metropolitan Areas
Robinson, Sherry, Janoski, Walter, Academy of Entrepreneurship Journal
Rural areas are generally considered to be challenging for entrepreneurs seeking to begin new businesses due to factors such as lower levels of economic development, scarcity of affordable professional services, and smaller markets. However, some studies have found that small business owners find their locations promote, rather than hinder, success. A previous study of Ohio counties determined that although business accession rates (the number of new businesses compared to the number of current businesses) were higher in metropolitan areas, separation rates (the number of business terminations compared to the number of current businesses) were equal to or even significantly lower in non-metropolitan counties. This study seeks to provide further insight into this issue by examining accession and separation rates in metropolitan and non-metropolitan counties of Mississippi. A greater understanding of these rates may be especially important to lenders or investors assessing the risk of failure of new businesses in rural areas as well as to advisors seeking to improve the economic health of non-metropolitan areas.
Urban and rural areas can present very different business environments due to factors such as social networks and demographics as well as geography (Beggs, Haines & Hurlbert, 1996; Frazier & Niehm, 2004). Rural areas are generally considered to be challenging for entrepreneurs due to factors such as lower levels of economic development, scarcity of affordable professional services, and smaller markets (Chrisman, Gatewood, & Donlevy, 2002; Fendley & Christenson, 1989; Kale, 1989; Lin, Buss, & Popovich, 1990; Mueller, 1988; Osborne, 1987; Small Business Administration [SBA], 2001; Tigges & Green, 1994; Trucker and Lockhart, 1989). However, in some studies (Robinson, 2001; Sullivan, Scannell, Wang, & Halbrendt, 2000; Tosterod & Habbershon, 1992) small business owners found benefits to being located in a rural area.
This study further examines this issue by comparing the accession rates (new business births compared to the number of active businesses) and separation rates (business deaths compared to the number of active businesses) in metropolitan and non-metropolitan counties of Mississippi (Mississippi Employment Security Commission, 2005). These are then further analyzed by Ruralurban Continuum Codes (RUCC) determined by the Economics Research Service (ERS). The disadvantages common to non-metro areas may lead to lower accession rates and higher separation rates. However, if there is an advantage to operating a business in a non-metropolitan area, the opposite may be found.
The following section briefly reviews the factors that promote or discourage entrepreneurship in rural areas, leading to the study's examination of business accession and separation rates. As will be discussed in the methodology section, the terms rural and non-metropolitan are not technically synonymous under the specific definitions created by the U.S. Census Bureau (2002), but in this study these terms will be used interchangeably, as will urban and metropolitan.
CHALLENGES FOR RURAL BUSINESSES
Many factors would seem to discourage rural entrepreneurship and economic development. In fact, the SBA (1999) reports that between 1990 and 1995, all industries did better in urban than in rural areas. Non-metropolitan areas naturally have lower populations, leading to smaller markets. In addition to less aggregate buying power, rural residents also have lower levels of individual buying power (Barkley, 1993; Kean, Gaskill, Letstritz, & Jasper, 1998). Combining poorer markets with more expensive or more difficult to find resources would likely decrease the chance for a successful business start and stay in operation.
Location may influence business starts and success in that geographic region is one determinant of the availability of needed resources (Chrisman et al. …