A Competing Risks Analysis of Corporate Survival

Authors

  • Qing He,

    1. Qing He is an Assistant Professor in the School of Finance, Renmin University of China, China Financial Policy Research Center, Renmin University of China, Beijing, 100872, China.
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  • Terence Tai-Leung Chong,

    1. Terence Tai-Leung Chong is an Associate Professor in the Department of Economics, The Chinese University of Hong Kong, Shatin, N.T., Hong Kong.
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  • Li Li,

    1. Li Li is a Graduate Student in the Department of Economics, The Chinese University of Hong Kong, Shatin, N.T., Hong Kong.
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  • Jun Zhang

    1. Jun Zhang is an Assistant Professor in the Department of Economics, The Chinese University of Hong Kong, Shatin, N.T., Hong Kong.
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  • We thank Bill Christie (editor) and two anonymous referees for helpful comments. We would also like to thank Hongbin Li, Nan-kuang Chen for helpful comments, and Chi-man Wong, Mansfield Wong, Kun Ma, Daniel Law, and Tsz-hang Siu for able research assistance. All remaining errors are ours. Financial support from the National Social Science Foundation of China (Grant Number 10CGL011) and Key Projects in Philosophy and Social Sciences Research program of the Ministry of Education of the People's Republic of China (Grant Number 08JZD0011) is gratefully acknowledged.

Abstract

This paper investigates how the characteristics of a Hong Kong-listed firm influence its odds of going bankrupt, being acquired, and going private. A competing risks model is estimated. Our results reveal that larger firms are more vulnerable to bankruptcy, and that fast-growing firms are more likely to be acquired. We also demonstrate that undervaluation is a key driver of going private. Despite the low agency cost due to the concentrated ownership structure, the propensity of Hong Kong-listed firms to go private still increases with the level of free cash flow.

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