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A Panel Analysis Of Uk Industrial Company Failure

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  • JOHN HUNTER

    ()

  • Natalia Isachenkova

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Abstract

We examine the failure determinants for large quoted UK industrials using a panel data set comprising 539 firms observed over the period 1988-93. The empirical design employs data from company accounts and is based on Chamberlain’s conditional binomial logit model, which allows for unobservable, firm-specific, time-invariant factors associated with failure risk. We find a noticeable degree of heterogeneity across the sample companies. Our panel results show that, after controlling for unobservables, lower liquidity measured by the quick assets ratio, slower turnover proxied by the ratio of debtors turnover, and profitability were linked to the higher risk of insolvency in the analysis period. The findings appear to support the proposition that the current cash-flow considerations, rather than the future prospects of the firm, determined company failures over the 1990s recession.

Suggested Citation

  • JOHN HUNTER & Natalia Isachenkova, 2003. "A Panel Analysis Of Uk Industrial Company Failure," Economics and Finance Discussion Papers 03-10, Economics and Finance Section, School of Social Sciences, Brunel University.
  • Handle: RePEc:bru:bruedp:03-10
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    References listed on IDEAS

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    1. Goudie, A W & Meeks, G, 1991. "The Exchange Rate and Company Failure in a Macro-Micro Model of the UK Company Sector," Economic Journal, Royal Economic Society, vol. 101(406), pages 444-457, May.
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    Cited by:

    1. Hunter, John & Isachenkova, Natalia, 2006. "Aggregate economy risk and company failure: An examination of UK quoted firms in the early 1990s," Journal of Policy Modeling, Elsevier, vol. 28(8), pages 911-919, November.

    More about this item

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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