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

Author

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  • Arnab Bhattacharjee
  • Chris Higson
  • Sean Holly

    ()

  • Paul Kattuman

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.

Suggested Citation

  • 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.
  • 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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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Arnab Bhattacharjee & Jean Bonnet & Nicolas Le Pape & Régis Renault, 2008. "Entrepreneurial motives and performance : Why might better educated entrepreneurs be less successful ?," Post-Print halshs-00337431, HAL.
    2. 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.
    3. Arnab Bhattacharjee, 2009. "Testing for Proportional Hazards with Unrestricted Univariate Unobserved Heterogeneity," Discussion Paper Series, Department of Economics 200904, Department of Economics, University of St. Andrews.
    4. Javier Gutiérrez Rueda, "undated". "Un análisis de riesgo de crédito de las empresas del sector real y sus determinantes," Temas de Estabilidad Financiera 046, Banco de la Republica de Colombia.
    5. Arnab Bhattacharjee, 2008. "Partial Orders with Respect to Continuous Covariates and Tests for the Proportional Hazards Model," Discussion Paper Series, Department of Economics 200807, Department of Economics, University of St. Andrews.
    6. Bhattacharjee, Arnab & Han, Jie, 2014. "Financial distress of Chinese firms: Microeconomic, macroeconomic and institutional influences," China Economic Review, Elsevier, vol. 30(C), pages 244-262.

    More about this item

    Keywords

    Bankruptcy; Acquisitions; Macroeconomic Instability; Competing Risks; Cox Proportional Hazards Model.;

    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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