Business failures and macroeconomic factors in the UK

Liu, J

Abstract

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.

Citation

Liu, J. (2009). Business failures and macroeconomic factors in the UK. Bulletin of Economic Research, 61(1), 47-72. https://doi.org/10.1111/j.1467-8586.2008.00294.x

• Journal Article Type: Article
• Publication Date: Jan 1, 2009
• Deposit Date: Oct 28, 2011
• Journal: Bulletin of Economic Research
• Print ISSN: 0307-3378
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 61
• Issue: 1
• Pages: 47-72
• DOI: https://doi.org/10.1111/j.1467-8586.2008.00294.x
• Publisher URL: http://dx.doi.org/10.1111/j.1467-8586.2008.00294.x