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Business Failures and Macroeconomic Risk Factors

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  • Ran Sharabany

    (Bank of Israel)

Abstract

This paper analyzes the characteristics of businesses in Israel that went into liquidation. It finds that those businesses had fewer employees than the average, localmarket oriented, and were mainly in manufacturing, and in particular in traditional industries. Quarterly data (from 1990:I to 2002:I) on the compulsory company liquidation rate and potential macroeconomic determinants are used to build a timeseries econometric model which tests explicitly for the impact of macroeconomic variables on the number of company liquidations in Israel. The results show that the liquidation rate rises with unexpected inflation and with positive changes in the nominal and real interest rates. The output gap negatively affects the liquidation rate. In line with the findings of Bernanke, Gertler and Gilchrist (1996), it was found that the factors relevant to the businesses that went into liquidation do not necessarily affect the financial distress of traded companies. This is because the latter are generally larger and can therefore more readily raise debt or capital, and are usually less affected by credit rationing.

Suggested Citation

  • Ran Sharabany, 2004. "Business Failures and Macroeconomic Risk Factors," Bank of Israel Working Papers 2004.06, Bank of Israel.
    • Handle: RePEc:boi:wpaper:2004.06
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    References listed on IDEAS

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    1. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February.
    2. Schiantarelli, Fabio, 1996. "Financial Constraints and Investment: Methodological Issues and International Evidence," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 12(2), pages 70-89, Summer.
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    8. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
    9. Cuthbertson, Keith & Hudson, John, 1996. "The Determinants of Compulsory Liquidation in the U.K," The Manchester School of Economic & Social Studies, University of Manchester, vol. 64(3), pages 298-308, September.
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    Cited by:

    1. Nicholas Lee & Fu-Min Chang & Yale Wang & Duong Thu La & Hsiang-Jane Su, 2017. "Impacts of Macroeconomic News on Vietnamese SOEs' Performance," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 7(1), pages 1-5.
    2. Bukovšek Marjeta Zorin & Bratina Borut & Tominc Polona, 2017. "Factors of a Successfully Implemented Compulsory Settlement," Naše gospodarstvo/Our economy, Sciendo, vol. 63(1), pages 14-26, March.
    3. Peter L. Jones, 2013. "The determinants of aggregate creditors’ voluntary liquidations," Applied Economics, Taylor & Francis Journals, vol. 45(10), pages 1321-1330, April.
    4. Sami BEN JABEUR & Youssef FAHMI & Abdellatif TAGHZOUTI & Hicham SADOK, 2014. "La défaillance des entreprises: une revue de littérature," Working Papers 2014-315, Department of Research, Ipag Business School.
    5. Peter Lloyd Jones, 2011. "The determinants of aggregate creditors' voluntary liquidations," Post-Print hal-00762895, HAL.

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