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Closely related to this question: Did Donald Trump file for bankruptcy four times? Donald Trump has consistently claimed that filing for Chapter 11 bankruptcy is not unheard of and 'only' four bankruptcy claims out of all his businesses is a good ratio:

Out of hundreds of deals that I’ve done, hundreds, on four occasions I’ve taken advantage of the laws of this country, like other people. I’m not going to name their names because I’m not going to embarrass, but virtually every person that you read about on the front page of the business sections, they’ve used the law.

My question: is this accurate? Are four bankruptcies out of all his businesses a common or reasonable number of bankruptcy claims? Is this ratio consistent with other business entrepreneurs ratios?

My focus is on the time period from 1965 to present. Beyond that I would prefer samples as similar to the sort of businesses that Donald Trump was involved in; however, I'm afraid that there is a limited number of entrepreneurs similar to Trump to compare to. I don't want to place too many restrictions and find that I've limited us to a sample size of one.

Even a rough approximation would be better than no data at all, so a comparison with the average failure rate of businesses in America may be sufficient.

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    Interesting question. Presumably you're talking about across a similar time period and geographic area to Trump's businesses - can you clarify which years, and where (e.g. USA, multinational, specific states?)
    – user56reinstatemonica8
    Commented Sep 21, 2015 at 17:14
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    I'm not quite sure that this question is suitable for Skeptics. Skeptics are generally good for researching falsifiable facts and claims, but whether Trump's bankruptcy rate is consistent with similar entrepreneurs or similar businesses requires more than just the facts, but more of expert opinions.
    – Lie Ryan
    Commented Sep 22, 2015 at 16:26
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    I think that this is a great question in concept, but fear it isn't properly answerable - as @Lie noted, pure #s to be cited are irrelevant without expert understanding of context. Different bankruptcies are different in their causes and context surrounding them - an airline Ch11 post-2001 and Enron and a randoms start-up have virtually nothing in common. Yet they all count as a single bancruptcy.
    – user5341
    Commented Sep 22, 2015 at 17:01
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    I have edited in what Trump actually said in provided reference. The reason is that his claim doesn't match the question. He doesn't say "it is not unheard of", he doesn't say it is a good ratio, he doesn't claim to be the average. He claims most other well-known business people have also declare bankruptcy at least once. These different claims need different evidence to support/refute them.
    – Oddthinking ♦
    Commented Feb 18, 2016 at 15:28
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    A lower failure rate would correspond to investment in less risky businesses. It's not clear to me that this is necessarily a good thing. A more meaningful measure might be the rate of return compared to the stock market (or perhaps in some cases the property market), but one still ought to take risk into account in order to make a meaningful comparison.
    – A E
    Commented Feb 19, 2016 at 16:32

1 Answer 1

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Preamble - The Donald dodged the question. A "deal" does not equate to starting a business. But in the analysis below I'll err on the side of giving him the benefit of the doubt. If anyone has better data on bankrupcy rates in the US and the number of businesses The Donald owns I'd be interested in seeing them.

The Answer - Some data is presented here around the number of Chapter 11 bankrupcy filings in the US over time. In particular there is a nice graph given for Trump-ly sized public companies (assets > $280M) filing for bankrupcy that I've reproduced below. One can see that there is a baseline of ~20 Chapter 11 filings for these companies per year, peaking at ~100 filings at the front end of recessions (dot-com and the banking bubbles), averaging out at something like 40 per year (~800 filings over a 20 year period).

enter image description here

According to US Census results from 2013, there were something like 5.7 million firms in the US. There are about 9,300 firms that could be considered Trump-ly (my arbitrary definition being a company of 1000+ employees). Assuming this is representative of the number of Trump-ly firms that existed each year since 1994, we have a Chapter 11 filing rate of 40/9,300 = ~0.4% per year.

The Donald cited over 500 businesses he is an executive with as part of his candidacy filings. Let's use this as an assumption of the average number of businesses that he has started that exist at any one time.

At 500 businesses per year, a failure rate of 0.4% per year means that you could expect two (2) of his businesses to file for Chapter 11. So based on these assumptions he is batting well above the average.

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    This analysis is not statistically valid. You can't just multiply the historical average Chapter 11 rate against the number of businesses Trump has created and conclude anything meaningful. Also, I'd wager that the majority of the 500+ companies listed in his candidacy filing have assets well below $280M. Judging by their names, the majority seem to be created specifically to limit liability in real estate transactions ("deals") and are probably (1) no longer actively managed by Trump; and/or (2) have zero salaried employees.
    – ESultanik
    Commented Mar 15, 2016 at 18:08
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    All points well taken. As noted in the answer, if you have better data I'd be interested in seeing it.
    – Doug B
    Commented Mar 15, 2016 at 18:23
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    Answers with much better analysis than this one have been deleted by mods for performing primary research.
    – March Ho
    Commented Mar 17, 2016 at 11:10
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    This is a back of the envelope calculation. See FAQ: What are theoretical answers?. As such is invalid in its current form. Provide references to support your methodology, not only your numbers.
    – Sklivvz
    Commented Mar 17, 2016 at 18:55
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    @AndrewMattson: Different kinds of businesses are expected to have different failure rates. Without knowing more particulars of Trump's successful or unsuccessful businesses, the fact that his failure rate is 2x the "average" for businesses of similar size says nothing about whether he did better or worse than average for businesses that were similar in other ways.
    – supercat
    Commented Oct 3, 2016 at 16:08

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