Why Companies Fail: What 50 Years of Data Tells Us

The rate at which US companies disappear has more than halved since the turn of the millennium. Five-year failure risk peaked at around 40% in the early 2000s. It now sits at roughly 18%, about where it stood in 1980.

Rarer, though, is not the same as rare. At this rate, roughly a fifth of listed US companies face a delisting over the next five years. Stretched across the average CEO tenure of seven years, it rises to nearly a quarter.

In other words: one in four CEOs should expect to preside over the end of their company’s life as a listed entity.

To get to this number, we assembled a database of over 30,000 US-listed public companies covering the last 50 years—from 1975 to 2025. We define failure as delisting from a public exchange, whether by bankruptcy, acquisition, or being taken private. Not all of these are disasters for shareholders: being bought at a premium is a good day. Yet all of them end the current management team’s mandate, which is the perspective this article takes. (See “Measuring Corporate Failure Rates.”)

Our analysis finds that:

• The decline in delisting frequency in the past two decades was not earned by companies but enabled by changes in the environment, some of which are now reversing.
• The general economic cycle does not move the rate at which companies delist. Neither the global financial crisis nor the COVID-19 pandemic drove up failure rates.
• The average failure rate is not representative of any company’s specific risk. To understand it, we deaverage our sample by size, age, and sector.

Failure Rates Have Halved but Not Because of Company Resilience

Over the last five decades, the failure rate has risen and fallen repeatedly, with a long slide since the early 2000s. (See Exhibit 1.)

That is not due to great strides in corporate resilience. Rather, the decline in failure rates can be explained by two major changes in circumstances.

The listed population is smaller and prescreened. The dot-com bust cleared out the weaker half of the 1990s IPO cohort. Since then, the public markets have become markedly more selective about whom they admit: regulation, disclosure requirements, and litigation exposure have raised the fixed cost of being public, with Sarbanes-Oxley in 2002 being the clearest milestone. Weaker candidates are discouraged from listing at all, so the firms that do list are the ones clearing a higher bar. Our data corroborates it: the average age at which a listed company fails was 29 years in 2000 and is now about 43 years.

Meanwhile, the most dangerous phase of corporate life has moved off-exchange. Deeper private capital markets, opened up by deregulation, let risky ventures raise money without ever going public. As a result, companies stay private far longer and pass through their fragile years outside our sample entirely.

Governments and central banks kept the marginal firms alive. After the global financial crisis in 2008, and again through the COVID-19 shock, authorities intervened at a scale that stopped shocks from becoming exit waves. Near-zero interest rates through the 2010s kept leveraged and marginal firms financed rather than in default.

Neither explanation has anything to do with companies becoming intrinsically more resilient. Firms did not get better at surviving; the environment got better at deferring failure. That distinction matters because conditions can revert.

Historical Drivers of Higher Failure Rates

Fifty years is long enough for the same conditions to come around more than once. These ones are worth watching for.  

Money gets expensive. Tighter monetary policy pushes highly leveraged firms into default, with a lag. The clearest case is the rise in failure rates that followed the Federal Reserve’s sharp increases in the federal funds rate under Chairman Paul Volcker to put a brake on inflation. Real interest rates shot up to near 9% in 1981, from near-zero just a few years prior. Many firms entered that environment already weakened by the oil price shocks and stagflation of the 1970s. Average five-year failure risk rose by around 11 percentage points through 1984—and further turbulence, including oil price swings and the stock market crash of 1987, kept it elevated for the rest of the decade.

Finance gets deregulated. New financing channels fund takeover waves. The freeing of pension capital for riskier investment in 1979, the emergence of junk bonds, and the Savings and Loan liberalization each facilitated raising capital and made aggressive takeovers possible. By the mid-to-late 1980s, more than half of all junk bond issues were takeover related, and leveraged buyouts rose sharply across the decade.

An industry gets deregulated. Removing entry barriers or price controls, and privatizing, intensifies competition and drives consolidation. The Airline Deregulation Act of 1978, the AT&T breakup in 1984, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, and the Telecommunications Act of 1996 each produced a wave of consolidation and exits.

The listing window opens. Every IPO wave adds younger and usually smaller firms, which makes the listed population more fragile and restocks the supply of takeover targets. Peaks in IPO activity reliably precede peaks in failure risk, as in 1986 and in 1996 to 1997.

Why the Economic Cycle Is Not the Signal to Watch

Conspicuously absent from those conditions is the economy itself. We find no meaningful relationship between the general economic cycle and the rate at which companies delist—neither as a predictor nor as an outcome. We tested the link between GDP growth and failure rates in several forms, including lagged versions of both series to allow for delayed effects.

The reason is that the two main exit routes move against each other. When conditions tighten, bankruptcies rise while acquisitions dry up. When conditions ease, the reverse. The global financial crisis is the clean illustration: annual bankruptcy rates rose from around 1.7% in 2007 to around 4.2% in 2009, while the merger rate fell from around 7.3% to around 2.9%. The aggregate delisting rate barely moved.

Specific Risk Depends on Age, Size, and Sector

All of the above is a statement about the aggregate rate, not about the company. The five-year failure rate of 18% is an average across a population that includes seven-year-old biotech firms and hundred-year-old railroads. A company’s number depends on how old it is, how big it is, and what business it is in.

Age reduces risk but only to a point. Failure risk is highest in a company’s earliest years, above 25% over any five-year window until age 20, and it falls consistently across the first five decades after founding.

Young companies are short of the buffers that only time supplies. They have not fully worked out their business and operating models, so they are less stable. They have not been through a bad stretch and learned how to navigate it. And they have not built the track record with investors, lenders, customers, and suppliers that turns a bad quarter into a phone call rather than an exit.

Yet experience does not insulate a company from failure. Risk reaches a floor at around age 50 to 60, at roughly 13% over five years, and stays there. (See Exhibit 2.) No amount of experience buys exemption from an external shock, and age brings a liability of its own: processes harden, cost structures set as organizational and technological legacy accumulates, and the capacity to adapt declines.

Size matters, especially in a crisis. When it comes to failure rate, size mirrors age, which is what you would expect given that older firms tend to be larger.

Split the population by revenue size, and risk declines steadily with scale. The smallest quartile of firms, sitting below $40 million in annual revenue in 2025, today carries a five-year failure risk of around 26%. The largest, with revenue above $3.5 billion, today carries around 8%.

The smallest firms are most exposed because they depend on fewer customers and products and face higher credit costs. The largest are not safe either: the protection that scale offers runs out and then turns into exposure, as complexity becomes expensive to manage and regulators pay closer attention.

What matters most is when scale pays out. The gap between the smallest and largest quartiles widens to 25 percentage points in crises, against 15 in calmer periods. (See Exhibit 3.) The dot-com crisis wiped out large numbers of small, young internet companies with no established revenue base, while older and larger firms were hit hard and survived on the buffers they had built or on more diverse revenue streams. The global financial crisis ran through a different channel: as bank lending fell away, larger firms turned to corporate bond markets that reopened relatively quickly, and smaller firms had nowhere to turn.

Your sector does not decide how risky you are but which crises reach you. Over the long run, most sectors look alike. Real estate and communication services both average a five-year failure risk of around 26% across the five decades we studied. Consumer discretionary runs somewhat hotter, at around 31%, because demand is elastic and households cut it back first. The utilities sector is the one structural exception and runs cooler than everything else at around 11%, insulated by regulation and inelastic demand.

Sectors diverge when a shock is specific to their economics. Three episodes in our data illustrate this, each running through a mechanism of its own (see Exhibit 4):

• The Volcker era was a cost-of-capital shock. When money became expensive, the damage concentrated where the business model depended on cheap money: heavy fixed assets financed with debt and demand that is itself bought on credit. Real estate took it hardest, its five-year failure rate rising from 11% to 36%.
• The oil price collapse of the mid-1980s was a commodity price shock, and the damage concentrated in firms whose revenue depends on that price and whose capital stock cannot be repurposed. The energy sector’s failure rate roughly doubled, from about 21% to 41%.
• The dot-com crisis was a technological displacement shock. When a technology reprices an industry, the damage lands in the industry being displaced and in the infrastructure built to serve it. Communication services firms’ failure rate rose from roughly 25% to 46%.

Different crises work through different mechanisms, and each time the ranking of sectors reshuffles. You need to view your sector not only as an indicator of baseline risk but also as a guide to understanding which crisis mechanism can reach you.

What to Do If Your Risk Is Rising

We will not forecast the next decade, and we would be skeptical of anyone who does. As our colleagues at the BCG Center for Macroeconomics have argued, quantified risk measures are no substitute for judgment.

What half a century of data does support is still useful: the failure rate moves when the financial plumbing does, and a quiet decade is not a promise about the next one.

If you conclude your own risk is rising, there are three moves to follow:

• Build slack before you need it. Cash, low-cost debt capacity held in reserve, and diversified funding sources have their highest value in a crisis, which is exactly when they are most expensive to acquire.
• Price failure risk into large bets. A bold bet may be the right call, even in a crisis, but weigh any large capital deployment against what it does to your ability to keep operating.
• Use crises to look for opportunities. Difficulties and rising failure rates among less prepared competitors create paths to extend your advantage.