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

  • Arnab Bhattacharjee
  • Chris Higson
  • Sean Holly


  • Paul Kattuman

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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Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 200713.

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Date of creation: 15 Sep 2007
Date of revision:
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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