Assessment of Performance Measurement in - St Clements University

Causes of exit barriers
If the assets of a business, either fixed or working capital or both, are
lightly specialized to the particular business, company or location in
which they are being used, this creates exit barriers by diminishing the
liquidation value of the firms’ investment in the business. For example,
Nigeria textile industry due to high level of competition from cheap
textile materials from China cannot change business because of large
quantity of fixed assets, thus making it very difficult to be sold.
Secondly, the number, of buyers wishing to use the assets in the same
business is usually few, because the same reasons that make the firm
want to sell its assets in a declining market will probably discourage
potential buyers.
Also, if the liquidation value of the assets of a business is low, it is
economically optimal for the firm to remain in the business even if the
expected discounted future cash flows are low. If the assets are
durable, the book value may greatly exceed the liquidation value. Thus
it is possible for firms like the textile industry in Nigeria to earn a book
loss but it will be economically appropriate to remain in the business
because the discounted cash flows exceeded the opportunity cost of
capital on the investment that could be realized if the business were
divested.
Fixed cost of exit
Often substantial fixed costs of exiting elevate exit barriers by reducing
the effective liquidation value of a business. A firm often must face the
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