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Macroeconomic instability and business exit: determinants of failures and acquisitions of UK firms

Journal

Economica

Subject

Accounting

Publishing details

Economica 2008 Vol 76:301 p 108-131

Authors / Editors

Bhattacharjee A;Higson C;Holly S;Kattuman P

Biographies

Chris Higson

Publication Year

2008

Abstract

We study the impact of the macroeconomic environment on business exit in a world where acquisition and bankruptcy are co-determined. We estimate competing risk hazard regression models using data on UK quoted firms spanning a 38-year period that witnessed several business cycles. We find that the processes determining bankruptcies and acquisitions depend on the macroeconomic environment. In particular, macroeconomic instability has opposing effects on bankruptcy hazard and acquisition hazard, raising the former and lowering the latter. While bankruptcy hazard is counter-cyclical and acquisition hazard pro-cyclical, the US business cycle is a better predictor than the UK cycle itself.

Available on ECCH

No


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