Macro Economic Instability and Business Exit: Determinants of Failures and Acquisitions of Large UK Firms

Bhattacharjee, Arnab; Higson, Chris; Holly, Sean; Kattuman, Paul

doi:10.2139/ssrn.311240

Cited by 34 publications

(40 citation statements)

References 19 publications

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“…Aside from that, inflation can also engender expectations of a subsequent tightening of macroeconomic policy, leading to a decline in business confidence. Recent empirical findings on the exit behaviour of listed UK firms over 1965-98 presented by Bhattacharjee, Higson, Holly and Kattuman (2002), have corroborated Wadhwani's results that uncertainty in the form of sharp increases of inflation heightened bankruptcy risk.…”

Section: Company Failure Theories and Stylised Facts On The Role Of Mmentioning

confidence: 62%

“…Taffler and Tisshaw (1977), Marais (1979), Taffler (1982), Peel, Peel, and Pope (1986), Goudie (1987), Keasey and McGuinness (1990), Goudie and Meeks (1991), Cosh and Hughes (1995), Alici (1995), and Morris (1997) have modelled failure with cross-sectional data using accounting ratios-based explanatory variables. The competing risks framework has recently been employed for an exploration of the joint influence of firm-specific and macroeconomic factors on bankruptcy risk in Bhattacharjee, Higson, Holly and Kattuman (2002). In relation to the importance of firm-level attributes, observable from financial accounts, these studies have summarily documented that high gearing, declining profitability and insufficient liquidity increase the likelihood of distress and insolvency.…”

Section: Company Failure Theories and Stylised Facts On The Role Of Mmentioning

confidence: 99%

“…Recent academic research and commercial models of credit risk have attempted to take account of the role of macroeconomic conditions in explaining the process of corporate failure due to insolvency (see e.g. Moody's Report № 53853, 2000; Bhattacharjee, Higson, Holly, Kattuman, 2002).…”

Section: Introductionmentioning

confidence: 99%

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Aggregate Economy Risk and Company Failure: An Examination of UK Quoted Firms

Hunter

Isachenkova

2006

SSRN Journal

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Considerable attention has been directed in the recent finance and economics literature to issues concerning the effects on company failure risk of changes in the macroeconomic environment. This paper examines the accounting ratio-based and macroeconomic determinants of insolvency exit of UK large industrials during the early 1990s with a view to improve understanding of company failure risk. Failure determinants are revealed from estimates based on a cross-section of 369 quoted firms, which is followed by an assessment of predictive performance based on a series of time-to-failure-specific logit functions, as is typical in the literature. Within the traditional for cross-sectional data studies framework, a more complete model of failure risk is developed by adding to a set of traditional financial statement-based inputs, the two variables capturing aggregate economy risk -one-year lagged, unanticipated changes in the nominal interest rate and in the real exchange rate. Alternative estimates of prediction error are obtained, first, by analytically adjusting the apparent error rate for the downward bias and, second, by generating holdout predictions. More complete, augmented with the two macroeconomic variables models demonstrate improved out-ofestimation-sample classificatory accuracy at risk horizons ranging from one to four years prior to failure, with the results being quite robust across a wide range of cut-off probability values, for both failing and non-failed firms.Although in terms of the individual ratio significance and overall predictive accuracy, the findings of the present study may not be directly comparable with the evidence from prior research due to differing data sets and model specifications, the results are intuitively appealing. First, the results affirm the important explanatory role of liquidity, gearing, and profitability in the company failure process. Second, the findings for the failure probability appear to demonstrate that shocks from unanticipated changes in interest and exchange rates may matter as much as the underlying changes in firm-specific characteristics of liquidity, gearing, and profitability. Obtained empirical determinants suggest that during the 1990s recession, shifts in the real exchange rate and rises in the nominal interest rate, were associated with a higher propensity of industrial company to exit via insolvency, thus indicating links to a loss in competitiveness and to the effects of high gearing. The results provide policy implications for reducing the company sector vulnerability to financial distress and failure while highlighting that changes in macroeconomic conditions should be an important ingredient of possible extensions of company failure prediction models.JEL Codes: G33

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Section: Company Failure Theories and Stylised Facts On The Role Of Mmentioning

confidence: 62%

Section: Company Failure Theories and Stylised Facts On The Role Of Mmentioning

confidence: 99%

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Aggregate Economy Risk and Company Failure: An Examination of UK Quoted Firms

Hunter

Isachenkova

2006

SSRN Journal

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“…A hazard model framework allows us to quantify the timing of the exit, rather than the mere incidence, as would be the case in a simple probit or regression model (see Bhattacharjee, et al 2002; also see Disney, et al 2003). …”

Section: The Cox Proportional Hazard Modelmentioning

confidence: 99%

Does Employing Undocumented Workers Give Firms a Competitive Advantage?

2012

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu Abstract: Using administrative data from the state of Georgia, this paper finds that, on average, across all firms, employing undocumented workers reduces a firm's hazard of exit by 19 percent. The advantage to firms from employing undocumented workers increases as more firms in the industry do so, decreases with the skill level of the firm's workers, increases with the breadth of a firm's market, and increases with the labor intensity of the firm's production process. Terms of use: Documents inJEL classification: J15, C41, J42

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“…What motivates someone to take a major investment decision after a lull period is studied in [34] Determinants of retention in graduate level economics programs is studied in [35] . Applications in macroeconomics and finance are found in [36][37][38][39][40][41] . Another widely applied field is political economy where the duration of tenure in a political office [42][43][44] or that of wars [45] are studied.…”

Section: Introductionmentioning

confidence: 99%

Duration Modeling in Undergraduate Econometrics Curriculum via Excel

Genç¹

2004

American J. of Applied Sciences

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Abstract:The main goal of an Econometrics course is to prepare students for more advanced levels of study and make them able to cope with the empirical problems they are likely to face. In recent years, there has been a tendency to purge merely theoretical topics from the econometric textbooks by including only time honored methods. Survival analysis, however, has so far failed to attract the attention of textbook writers. I conjecture that the general perception of the issue as an advanced topic as well as software barriers have led to this attitude. In this study, I work out an Excel file to outline the fundamental concepts of duration analysis at an introductory level. The file so generated may also be used by practitioners in appropriate cases with minimal learning cost. As such, I hope to dissipate the myth of difficulty associated with this subject matter.

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Macro Economic Instability and Business Exit: Determinants of Failures and Acquisitions of Large UK Firms

Cited by 34 publications

References 19 publications

Aggregate Economy Risk and Company Failure: An Examination of UK Quoted Firms

Aggregate Economy Risk and Company Failure: An Examination of UK Quoted Firms

Does Employing Undocumented Workers Give Firms a Competitive Advantage?

Duration Modeling in Undergraduate Econometrics Curriculum via Excel

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