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The Determinants of Compulsory Liquidation in the U.K

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  • Cuthbertson, Keith
  • Hudson, John

Abstract

Compulsory liquidations in the United Kingdom are found to depend on profit margins, the age distribution of new firms and the change in income gearing. The results are consistent with a model where the probability of insolvency increases with a squeeze on real profits which may be caused by higher real unit labour costs or rises in real material's input costs. An increase in income gearing on outstanding debt increases the probability that creditors will institute insolvency proceedings and 'bad luck' is found to be a cause of some liquidations of newly established firms. The empirical results imply that government macroeconomic policy can have a strong influence on liquidations via changes in income gearing and changes in profitability over the economic cycle. Copyright 1996 by Blackwell Publishers Ltd and The Victoria University of Manchester

Suggested Citation

  • Cuthbertson, Keith & Hudson, John, 1996. "The Determinants of Compulsory Liquidation in the U.K," The Manchester School of Economic & Social Studies, University of Manchester, vol. 64(3), pages 298-308, September.
    • Handle: RePEc:bla:manch2:v:64:y:1996:i:3:p:298-308
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    Cited by:

    1. 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.
    2. Nico Dewaelheyns & Cynthia Hulle, 2008. "Legal reform and aggregate small and micro business bankruptcy rates: evidence from the 1997 Belgian bankruptcy code," Small Business Economics, Springer, vol. 31(4), pages 409-424, December.
    3. Stefan Szymanski, 2017. "Entry into exit: insolvency in English professional football," Scottish Journal of Political Economy, Scottish Economic Society, vol. 64(4), pages 419-444, September.
    4. 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.
    5. Bhattacharjee, Arnab & Hany, Jie, 2010. "Financial Distress in Chinese Industry: Microeconomic, Macroeconomic and Institutional Infuences," SIRE Discussion Papers 2010-53, Scottish Institute for Research in Economics (SIRE).
    6. Ran Sharabany, 2004. "Business Failures and Macroeconomic Risk Factors," Bank of Israel Working Papers 2004.06, Bank of Israel.
    7. Salman, A. Khalik & von Friedrichs, Yvonne & Shukur, Ghazi, 2009. "Macroeconomic Factors and Swedish Small and Medium-Sized Manufacturing Firm Failure," Working Paper Series in Economics and Institutions of Innovation 185, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    8. Gertjan W. Vlieghe, 2001. "Indicators of fragility in the UK corporate sector," Bank of England working papers 146, Bank of England.

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