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Macro Economic Instability and Business Exit: Determinants of Failures and Acquisitions of Large UK Firms

Author

Listed:
  • Bhattacharje,e A.

    (Reserve Bank of India)

  • C.Higson

    (London Business School)

  • S.Holly

    (University of Cambridge)

  • P.Kattuman

Abstract

Using data over a 34-year span on UK quoted firms, this paper seeks to identify the factors that increase the likelihood of exit of firms. Firms may disappear through the mutually precluding events of bankruptcies and acquisitions. We use a competing-risks hazard model to determine characteristics leading to each outcome. Hazard models make use of the data on timing of these alternative outcomes and we exploit this to focus attention on how the hazards change over the business cycles, conditional on the post-listing age of the firm. We find that the volatility in macro environment has a role in determining, in different ways, the hazard of firms going bankrupt or being acquired.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Bhattacharje,e A. & C.Higson & S.Holly & P.Kattuman, 2002. "Macro Economic Instability and Business Exit: Determinants of Failures and Acquisitions of Large UK Firms," Royal Economic Society Annual Conference 2002 27, Royal Economic Society.
  • Handle: RePEc:ecj:ac2002:27
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    Citations

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    Cited by:

    1. Bhattacharjee, Arnab, 2004. "Estimation in hazard regression models under ordered departures from proportionality," Computational Statistics & Data Analysis, Elsevier, vol. 47(3), pages 517-536, October.
    2. Bhattacharjee, Arnab, 2004. "A Simple Test for the Absence of Covariate Dependence in Hazard Regression Models," MPRA Paper 3937, University Library of Munich, Germany.
    3. David Greenaway & Joakim Gullstrand & Richard Kneller, 2009. "Live or Let Die? Alternative Routes to Industry Exit," Open Economies Review, Springer, vol. 20(3), pages 317-337, July.
    4. Gómez-González, José Eduardo & Hinojosa, Inés Paola Orozco, 2010. "Estimation of conditional time-homogeneous credit quality transition matrices," Economic Modelling, Elsevier, vol. 27(1), pages 89-96, January.
    5. Bhattacharjee, Arnab & Bhattacharjee, Madhuchhanda, 2007. "Bayesian Analysis of Hazard Regression Models under Order Restrictions on Covariate Effects and Ageing," MPRA Paper 3938, University Library of Munich, Germany.
    6. Bonfim, Diana, 2009. "Credit risk drivers: Evaluating the contribution of firm level information and of macroeconomic dynamics," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 281-299, February.
    7. Balcaen, Sofie & Ooghe, Hubert, 2006. "35 years of studies on business failure: an overview of the classic statistical methodologies and their related problems," The British Accounting Review, Elsevier, vol. 38(1), pages 63-93.
    8. repec:ntu:ntugeo:vol1-iss2s-13-131 is not listed on IDEAS
    9. Natalia Isachenkova & Melvyn Weeks, 2009. "Acquisition, Involvency and Managers in UK Small Companies," Working Papers wp390, Centre for Business Research, University of Cambridge.
    10. Arnab Bhattacharjee & Chris Higson & Sean Holly & Paul Kattuman, 2007. "Macroeconomic Conditions and Business Exit: Determinants of Failures and Acquisitions of UK Firms," CDMA Working Paper Series 200713, Centre for Dynamic Macroeconomic Analysis.
    11. repec:diw:diwfin:diwfin01050 is not listed on IDEAS
    12. David O. Mbat & Eyo I. Eyo, 2013. "Corporate Failure: Causes and Remedies," Business and Management Research, Business and Management Research, Sciedu Press, vol. 2(4), pages 19-24, December.
    13. 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.
    14. 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.
    15. Greenaway, David & Gullstrand, Joakim & Kneller, Richard, 2008. "Surviving globalisation," Journal of International Economics, Elsevier, vol. 74(2), pages 264-277, March.
    16. Faiçal Belaid, 2014. "Loan quality determinants: evaluating the contribution of bank-specific variables, macroeconomic factors and firm level information," IHEID Working Papers 04-2014, Economics Section, The Graduate Institute of International Studies.
    17. Arnab Bhattacharjee & Chris Higson & Sean Holly, 2014. "Asymmetric Price Adjustment, Sticky Costs and Operating Leverage over the Business Cycle," SEEC Discussion Papers 1402, Spatial Economics and Econometrics Centre, Heriot Watt University.
    18. Philip Bunn & Victoria Redwood, 2003. "Company accounts based modelling of business failures and the implications for financial stability," Bank of England working papers 210, Bank of England.
    19. J. David Brown & Julie L. Hotchkiss & Myriam Quispe-Agnoli, 2013. "Does Employing Undocumented Workers Give Firms A Competitive Advantage?," Journal of Regional Science, Wiley Blackwell, vol. 53(1), pages 158-170, February.
    20. Arnab Bhattacharjee, 2005. "Models of Firm Dynamics and the Hazard Rate of Exits: Reconciling Theory and Evidence using Hazard Regression Models," Econometrics 0503021, University Library of Munich, Germany.
    21. Loewe, Markus & Al-Ayouty, Iman & Altpeter, Annegret & Borbein, Lisa & Chantelauze, Marc & Kern, Maximilian & Niendorf, Elisabeth & Reda, Malak, 2013. "Which factors determine the upgrading of small and medium-sized enterprises (SMEs)? The case of Egypt," IDOS Studies, German Institute of Development and Sustainability (IDOS), volume 76, number 76.
    22. Gongyu Chen & Chris Higson & Sean Holly & Ivan Petrella, 2010. "Equity Markets, Financial Integration and Competitive Convergence," Working Paper / FINESS 1.5, DIW Berlin, German Institute for Economic Research.
    23. A. Bhattacharjee & C. Higson & S. Holly & P. Kattuman, 2009. "Macroeconomic Instability and Business Exit: Determinants of Failures and Acquisitions of UK Firms," Economica, London School of Economics and Political Science, vol. 76(301), pages 108-131, February.
    24. Alessandra Amendola & Marialuisa Restaino & Luca Sensini, 2013. "Corporate Financial Distress And Bankruptcy: A Comparative Analysis In France, Italy And Spain," Global Economic Observer, "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences;Institute for World Economy of the Romanian Academy, vol. 1(2), pages 131-142, November.
    25. Marcus Box, 2008. "The death of firms: exploring the effects of environment and birth cohort on firm survival in Sweden," Small Business Economics, Springer, vol. 31(4), pages 379-393, December.

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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