What drives business failure? Exploring the role of internal and external knowledge capabilities during the global financial crisis

This paper contributes to the debate on the determinants of business failure and helps to clarify the effect of internal innovation efforts and external knowledge sources in a hazard model of firm exit. Using panel data of manufacturing and service firms in Spain for the period 2009-2015, our findings show that the financial crisis increased the probability of business failure; however, firms with high levels of R&D human capital are better positioned to survive under uncertain financial conditions. In addition, we find evidence that cooperation with vertical partners reduces the effect of business failure in manufacturing sectors. This study provides new insight into the antecedents of business failure and how firms can match their business capabilities to prevailing economic conditions.