Time to exit: Rational, behavioral, and organizational delays

Existing studies of exit delay typically focus on rational, behavioral, or organizational explanations in isolation. We integrate these different theoretical explanations, develop testable hypotheses for each, and examine them using the population of US banks between 1984 and 1997. Banks' exit behavior is not consistent with theories emphasizing the option value of avoiding reentry costs. Patterns of exit do, however, support models of rational delay under ability uncertainty. Controlling for this source of rational delay, we find evidence of delay due to behavioral biasfirms discount negative signals of profitability relative to positive signalsand organizational considerationsdelay increases with the separation of ownership and control. These results demonstrate that all three sets of theories are necessary to describe exit behavior. Copyright (c) 2014 John Wiley & Sons, Ltd.