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

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Author Info
Arnab Bhattacharjee
Chris Higson
Sean Holly ()
Paul Kattuman

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Abstract

We study the impact of macroeconomic instability on business exit in a world where acquisition and bankruptcy are co-determined. Our objective is to discover how the processes that determine bankruptcies and acquisitions depend on the macroeconomic environment, particularly, macroeconomic instability. To this end we estimate competing risks hazard regression models using data on UK quoted firms spanning a thirty-eight year period that witnessed several business cycles. We find that macroeconomic instability has opposite effects on bankruptcy hazard and acquisition hazard, raising the former and lowering the latter. While it is not surprising that bankruptcy hazard is counter-cyclical and acquisition hazard pro-cyclical, it is noteworthy that the US business cycle is a better predictor of UK acquisitions and bankruptcies than the UK cycle itself.

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Publisher Info
Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 0713.

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Date of creation: Sep 2007
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Publication status: Forthcoming in Economica.
Handle: RePEc:san:cdmawp:0713

Note: An earlier version was circulated as: "Macro Economic Instability and Business Exit: Determinants of Failures and Acquisitions of Large UK Firms", 2002, DAE Working Paper No. 0206, Department of Applied Economics, University of Cambridge, UK.
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Related research
Keywords: Bankruptcy; Acquisitions; Macroeconomic Instability; Competing Risks; Cox Proportional Hazards Model.;

Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis
L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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Cited by:
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  1. Arnab Bhattacharjee, 2008. "Partial Orders with Respect to Continuous Covariates and Tests for the Proportional Hazards Model," Discussion Paper Series, Department of Economics 0807, Department of Economics, University of St. Andrews. [Downloadable!]
  2. Arnab Bhattacharjee, 2009. "Testing for Proportional Hazards with Unrestricted Univariate Unobserved Heterogeneity," Discussion Paper Series, Department of Economics 0904, Department of Economics, University of St. Andrews. [Downloadable!]
  3. Isachenkova, N. & Weeks, M., 2008. "Acquisition, Insolvency and Managers in UK Small Companies," Cambridge Working Papers in Economics 0838, Faculty of Economics, University of Cambridge. [Downloadable!]
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