A Panel Analysis Of UK Industrial Company Failure

Natalia Isachenkova and John Hunter ()

Working Papers from Centre for Business Research, University of Cambridge

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.

Keywords: Company Failure Risk; Unobserved Heterogeneity; Conditional Fixed Effects Logit Model (search for similar items in EconPapers)
JEL-codes: G33 (search for similar items in EconPapers)
Date: 2002-03
New Economics Papers: this item is included in nep-dcm
Note: PRO-1
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: A PANEL ANALYSIS OF UK INDUSTRIAL COMPANY FAILURE (2003)
Working Paper: A PANEL ANALYSIS OF UK INDUSTRIAL COMPANY FAILURE (2003)
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