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Business failures and macroeconomic factors in the UK

Liu, J 2009, 'Business failures and macroeconomic factors in the UK' , Bulletin of Economic Research, 61 (1) , pp. 47-72.

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We examine the interactions between business failures and macroeconomic aggregates, and specifically the accounts of policy-induced changes in the macroeconomy for the observed fluctuations of UK business failures in the period 1966–2003 using the vector errorcorrection model (VECM). The results demonstrate that macroeconomic aggregates, i.e., interest rate, credit, profits, inflation and business births, exert differential impacts on business failures both in the short run and in the long run. The study reveals that structural changes in the financial and real sectors during the examined period have made an impact on the way in which the macroeconomy affects business failures. In particular, business failures are increasingly reacting tomonetary policy changes in the post-1980 period. Furthermore, the shocks to business failures can generate large fluctuations in macroeconomic aggregates, suggesting the importance of corporate balance sheets in financial stability and economic growth. The paper’s findings carry policy implications that are related to the survival of firms in distress and finance-driven business cycles.

Item Type: Article
Themes: Subjects outside of the University Themes
Schools: Colleges and Schools > College of Business & Law > Salford Business School > Finance, Accounting and Economics
Journal or Publication Title: Bulletin of Economic Research
Publisher: Wiley
Refereed: Yes
ISSN: 0307-3378
Depositing User: JL Liu
Date Deposited: 28 Oct 2011 11:03
Last Modified: 20 Aug 2013 17:16

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