BUSINESS FAILURES AND MACROECONOMIC FACTORS IN THE UK
Version of Record online: 8 JAN 2009
© 2009 The Author. Journal compilation © 2009 Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research.
Bulletin of Economic Research
Volume 61, Issue 1, pages 47–72, January 2009
How to Cite
Liu, J. (2009), BUSINESS FAILURES AND MACROECONOMIC FACTORS IN THE UK. Bulletin of Economic Research, 61: 47–72. doi: 10.1111/j.1467-8586.2008.00294.x
- Issue online: 8 JAN 2009
- Version of Record online: 8 JAN 2009
- business failures;
- structural changes
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 error-correction 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 to monetary 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.