Unveiling Spatial Dependencies — Investigating the Determinants of Firm Exit in Germany

ABSTRACT The determinants of firm exit in Germany, with a particular focus on the role of spatial dependence, are investigated. Using administrative microdata, a baseline probit model confirms the importance of internal firm characteristics, most notably firm size, growth dynamics, and legal form, in explaining exit probabilities. Descriptive spatial analysis based on Global Moran's I statistics reveals substantial geographic heterogeneity. To account for these spatial patterns, spatial probit models are estimated separately for each county, making the analysis computationally feasible. These estimations indicate that spatial dependence is present in a meaningful share of regions, driven primarily by unobserved regional conditions rather than observable firm characteristics. While the core internal determinants remain robust across specifications, the significance of the spatial autoregressive parameter demonstrates that firm exit is influenced not only by firm‐level attributes but also by the broader economic environment in which firms operate. These findings highlight the importance of incorporating spatial context into empirical analyses of firm survival.