Macro economic instability and business exit: determinants of failures and acquisitions of large UK firms

Higson, C J et al. (2002) Macro economic instability and business exit: determinants of failures and acquisitions of large UK firms. Working Paper. London Business School Accounting Working Paper.

Abstract

Using data over a thirtyfour 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 competingrisks hazard model to determine characteristics leading to each outcome. Hazard models make use of the data on the timing of these alternative outcomes and we exploit this to focus attention on how the hazards change over the business cycle, conditional on the postliving age of the firm. We find that the volatility in the macro environment has a role in determining, in different ways, the hazard of firms going bankrupt or being acquired.