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Changes in New Zealand’s Business Insolvency Rates after the Global Financial Crisis

Author

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  • Viv B Hall

    (Victoria University of Wellington)

  • C John McDermott

    (Motu Economic and Public Policy Research)

Abstract

We examine the question of whether the rate of business insolvencies in New Zealand is related to overall macroeconomic conditions. In particular, our interest is in whether the rate of business insolvencies changed in the wake of the Global Financial Crisis (GFC). We find that there was a large increase in insolvencies in New Zealand following the onset of the GFC in 2008. We also find that the timing of the change did not occur uniformly over the country but occurred at different times in four key regional centres. Sharply rising relative costs were the most important macroeconomic factor influencing corporate insolvencies in New Zealand, Auckland, Waikato and Wellington, but have been immaterial in determining New Zealand’s total personal insolvencies. It is employment growth and house price inflation that have been significant in explaining total personal insolvencies.

Suggested Citation

  • Viv B Hall & C John McDermott, 2019. "Changes in New Zealand’s Business Insolvency Rates after the Global Financial Crisis," Working Papers 19_15, Motu Economic and Public Policy Research.
    • Handle: RePEc:mtu:wpaper:19_15
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    File URL: https://motu-www.motu.org.nz/wpapers/19_15.pdf
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    References listed on IDEAS

    as
    1. Viv B. Hall & C. John McDermott, 2007. "Regional business cycles in New Zealand: Do they exist? What might drive them?," Papers in Regional Science, Wiley Blackwell, vol. 86(2), pages 167-191, June.
    2. Kurt Hess & Arthur Grimes & Mark Holmes, 2009. "Credit Losses in Australasian Banking," The Economic Record, The Economic Society of Australia, vol. 85(270), pages 331-343, September.
    3. Fabling, Richard & Grimes, Arthur, 2005. "Insolvency and economic development: Regional variation and adjustment," Journal of Economics and Business, Elsevier, vol. 57(4), pages 339-359.
    4. Rebecca Williams, 2017. "Characterising the current economic expansion: 2009 to present day," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 80, pages 1-22, June.
    5. Michael Reddell & Cath, Sleeman, 2008. "Some perspectives on past recessions," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 71, June.
    6. Rebecca Williams, 2017. "Business cycle review: 2008 to present day," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 80, pages 1-22, March.
    7. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
    8. Viv B. Hall & C. John McDermott, 2016. "Recessions and recoveries in New Zealand's post-Second World War business cycles," New Zealand Economic Papers, Taylor & Francis Journals, vol. 50(3), pages 261-280, September.
    9. Scott, James, 1981. "The probability of bankruptcy: A comparison of empirical predictions and theoretical models," Journal of Banking & Finance, Elsevier, vol. 5(3), pages 317-344, September.
    10. Hall, Viv B. & McDermott, C. John, 2009. "The New Zealand Business Cycle," Econometric Theory, Cambridge University Press, vol. 25(4), pages 1050-1069, August.
    11. Platt, Harlan D. & Platt, Marjorie B., 1994. "Business cycle effects on state corporate failure rates," Journal of Economics and Business, Elsevier, vol. 46(2), pages 113-127, May.
    12. Arthur Grimes & Sean Hyland, 2015. "Housing Markets And The Global Financial Crisis: The Complex Dynamics Of A Credit Shock," Contemporary Economic Policy, Western Economic Association International, vol. 33(2), pages 315-333, April.
    13. Cameron, A. Colin & Trivedi, Pravin K., 1990. "Regression-based tests for overdispersion in the Poisson model," Journal of Econometrics, Elsevier, vol. 46(3), pages 347-364, December.
    14. Chang-Jin Kim & Charles R. Nelson, 1999. "State-Space Models with Regime Switching: Classical and Gibbs-Sampling Approaches with Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262112388, December.
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    Cited by:

    1. Gemmell, Norman, 2020. "New Zealand's Tax Reforms and 'Tax Sheltering' Behaviour," Working Paper Series 9367, Victoria University of Wellington, Chair in Public Finance.

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    More about this item

    Keywords

    Bankruptcy; business cycles; structural breaks; New Zealand; Global Financial Crisis;
    All these keywords.

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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