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Macroeconomic Instability and Business Exit: Determinants of Failures and Acquisitions of UK Firms

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  • A. BHATTACHARJEE
  • C. HIGSON
  • S. HOLLY
  • P. KATTUMAN

Abstract

We study the impact of the macroeconomic environment on business exit in a world where acquisition and bankruptcy are co-determined. We estimate competing risk hazard regression models using data on UK quoted firms spanning a 38-year period that witnessed several business cycles. We find that the processes determining bankruptcies and acquisitions depend on the macroeconomic environment. In particular, macroeconomic instability has opposing effects on bankruptcy hazard and acquisition hazard, raising the former and lowering the latter. While bankruptcy hazard is counter-cyclical and acquisition hazard pro-cyclical, the US business cycle is a better predictor than the UK cycle itself. Copyright (c) The London School of Economics and Political Science 2008.

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Bibliographic Info

Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 76 (2009)
Issue (Month): 301 (02)
Pages: 108-131
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Handle: RePEc:bla:econom:v:76:y:2009:i:301:p:108-131

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Cited by:
  1. Harald Oberhofer, 2009. "Firm growth, European industry dynamics and domestic business cycles," Working Papers 2009-18, Faculty of Economics and Statistics, University of Innsbruck.
  2. Marina-Eliza Spaliara & Serafeim Tsoukas, 2010. "The Role of Bond Finance in Firms' Survival During the Asian Crisis," Working Papers 032010, Hong Kong Institute for Monetary Research.
  3. Bhattacharjee, A. & Samarjit Das, 2002. "Testing Proportionality in Duration Models with Respect to Continuous Covariates," Cambridge Working Papers in Economics 0220, Faculty of Economics, University of Cambridge.
  4. Loderer, Claudio & Waelchli, Urs, 2010. "Firm age and performance," MPRA Paper 26450, University Library of Munich, Germany.
  5. Bhattacharjee, A. & Holly, S., 2010. "Understanding Interactions in Social Networks and Committees," Cambridge Working Papers in Economics 1003, Faculty of Economics, University of Cambridge.

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