Robert J. Kauffman and Bin Wang

[Full Paper in pdf]

More than 5,000 Internet firms have failed since the beginning of 2000. One common perception is that the downturn in the economy drove many firms out of business. But then, why have some firms survived? In this research, we provide an empirical analysis on Internet firm survival by examining the im-pact of various market, firm and e-commerce-related drivers from the multiple perspectives of finance, information systems (IS), economics, and organizational theory research. We analyze a panel data set of 130 public Internet firms using two different techniques: nonparametric survival analysis, and the semi-parametric Cox proportional hazards model. We characterize the survival rates throughout the lifetimes of the public Internet firms in our sample. Our results reveal that competing in a breakthrough market, the selling of digital products or services, avoiding being an early entrant into the digital marketplace, avoid going IPO right before or after a market downturn, abundant financial capital, and a smaller firm size are associated with a lower likelihood of bankruptcy or failure. In addition, the detrimental effects on survival of operating in a re-formed market, going IPO right before or after a market downturn, and a larger firm size diminish over time as Internet firms mature and the weaker ones are forced out of the marketplace.

KEYWORDS: Breakthrough market, electronic commerce, Internet firms, IPOs, survival analysis.