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A Panel Analysis Of UK Industrial Company Failure

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  • Natalia Isachenkova
  • John Hunter

Abstract

We examine the failure determinants for large quoted UK industrials using a panel data set comprising 539 firms observed over the period 1988-93. The empirical design employs data from company accounts and is based on Chamberlain's conditional binomial logit model, which allows for unobservable, firm-specific, time-invariant factors associated with failure risk. We find a noticeable degree of heterogeneity across the sample companies. Our panel results show that, after controlling for unobservables, lower liquidity measured by the quick assets ratio, slower turnover proxied by the ratio of debtors turnover, and profitability were linked to the higher risk of insolvency in the analysis period. The findings appear to support the proposition that the current cash-flow considerations, rather than the future prospects of the firm, determined company failures over the 1990s recession.

Suggested Citation

  • Natalia Isachenkova & John Hunter, 2002. "A Panel Analysis Of UK Industrial Company Failure," Working Papers wp228, Centre for Business Research, University of Cambridge.
    • Handle: RePEc:cbr:cbrwps:wp228
    Note: PRO-1
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    Cited by:

    1. HOROBEȚ Alexandra & VRÎNCEANU Georgiana Maria, 2021. "Foreign Exchange and Oil Exposure of CEE Companies: Risks for Investors in Financial and Energy Industries," European Journal of Interdisciplinary Studies, Bucharest Economic Academy, issue 01, March.
    2. 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.
    3. Sami Ben Jabeur & Youssef Fahmi, 2018. "Forecasting financial distress for French firms: a comparative study," Empirical Economics, Springer, vol. 54(3), pages 1173-1186, May.

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    More about this item

    Keywords

    Company Failure Risk; Unobserved Heterogeneity; Conditional Fixed Effects Logit Model;
    All these keywords.

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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