Macroeconomic determinants of corporate failures. Evidence from Romania and Spain
Abstract
The purpose of this study is to investigate the reaction of the insolvency rate to the various shocks in the economies of Romania and Spain through a Structural Vector Autoregressive model. Departing from quarterly data for 2008–2016, it was found that the future values of the insolvency rate are explained by the past values of the interest rate and the retail trade index, more precisely macroeconomic risk factors cost of debt and changing in demand are main responsible for the health of non-financial corporations sector. In contrast, the influence of the investment rate on insolvency rate is not predictable. In addition, both in Romania and in Spain the interest rate is the main determinant of the insolvency rate variation, beyond its own innovations, in horizons of over 2 quarters. These results were obtained under the circumstances that the analysed period was characterized by the Great Recession and its recovery. In this situation, firms faced a lesser demand as well as a tightening on the possibilities of obtaining the external funds they needed, not only to finance their expansion projects but even their daily operations. Consequently, many firms faced a negative environment that forced them to go out of the market.
Keyword : companies’ failure, macroeconomic factors, cointegration analysis, VAR model, Spain, Romania
How to Cite
Anghel, I., Enache, C., & Merino, F. (2020). Macroeconomic determinants of corporate failures. Evidence from Romania and Spain. Journal of Business Economics and Management, 21(3), 743-759. https://doi.org/10.3846/jbem.2020.12217
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Enache, C. (2016). Metode cantitative in studiul fenomenelor economice. ASE, Bucuresti.
Everett, J., & Watson, J. (1998). Small business failure and external risk factors. Small Business Economics, 11(4), 371–90. https://doi.org/10.1023/A:1008065527282
Fisher, I. (1933). The debt-deflation theory of great depressions. Econometrica, 1(4), 337–357. https://doi.org/10.2307/1907327
Gonzalez, M., Nafe, J., & Rubio, G. (2018). Macroeconomic determinants of stock market betas. Journal of Empirical Finance, 45, 26–44. https://doi.org/10.1016/j.jempfin.2017.10.003
Guariglia, A., Spaliara, M. E., & Tsoukas, S. (2016). To what extent does the interest burden affect firm survival? Evidence from a panel of UK firms during the recent financial crisis. Oxford Bulletin of Economics and Statistics, 78(4), 576–594. https://doi.org/10.1111/obes.12120
Hamilton, J. D. (1994). Time series analysis. Princeton University Press.
Hannan, E. J., & Quinn, B. G. (1979). The determination of the order of an autoregression. Journal of the Royal Statistical Society, Series B, 41(2), 190–195. https://doi.org/10.1111/j.2517-6161.1979.tb01072.x
Harada, N., & Kageyama, N. (2011). Bankruptcy dynamics in Japan. Japan and the World Economy, 23(2), 119–128. https://doi.org/10.1016/j.japwor.2011.01.002
Hendry, D. F. (1995). Dynamic econometrics. Oxford University Press. https://doi.org/10.1093/0198283164.001.0001
Hernandez Tinoco, M., Holmes, P., & Wilson, N. (2018). Polytomous response financial distress models: The role of accounting, market and macroeconomic variables. International Review of Financial Analysis, 59, 276–289. https://doi.org/10.1016/j.irfa.2018.03.017
Johansen, S., & Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration – with applications to the demand for money. Oxford Bulletin of Economics and Statistics, 52(2), 169–210. https://doi.org/10.1111/j.1468-0084.1990.mp52002003.x
Jones, S., Johnstone, D., & Wilson, R. (2017). Predicting corporate bankruptcy: An evaluation of alternative statistical frameworks. Journal of Business Finance & Accounting, 44(1–2), 3–34. https://doi.org/10.1111/jbfa.12218
Kiyotaki, N., & Moore, J. (1997). Credit cycles. Journal of Political Economy, 105(2), 211–248. https://doi.org/10.1086/262072
Kuběnka, M., & Myšková, R. (2019). Obvious and hidden features of corporate default in bankruptcy models. Journal of Business Economics and Management, 20(2), 368–383. https://doi.org/10.3846/jbem.2019.9612
Leeper, E. M., Sims, C. A., & Zha, T. (1996). What does monetary policy do? Brookings Papers on Economic Activity, 1996(2), 1–78. https://doi.org/10.2307/2534619
Liu, J. (2004). Macroeconomic determinants of corporate failure: Evidence from the UK. Applied Economics, 36(9), 939–945. https://doi.org/10.1080/0003684042000233168
Lutkepohl, H., & Reimers, H. E. (1992). Impulse response analysis of cointegrated systems, Journal of Economics Dunamycs and Control, 16, 53–78. https://doi.org/10.1016/S0304-4076(97)00037-7
Lutkepohl, H. (1991). Introduction to multiple time series analysis. Springer-Verlag. https://doi.org/10.1007/978-3-662-02691-5
Mach, Ł. (2019). Measuring and assessing the impact of the global economic crisis on European real property market. Journal of Business Economics and Management, 20(6), 1189–1209. https://doi.org/10.3846/jbem.2019.11234
MacKinnon, J. G. (1996). Numerical distribution functions for unit root and cointegration tests. Journal of Applied Econometrics, 11(6), 601–618. https://doi.org/10.1002/(SICI)1099-1255(199611)11:6<601::AID-JAE417>3.0.CO;2-T
Mamatzakis, E., Matouse, R., & Vu, A. N. (2016). What is the impact of bankrupt and restructured loans on Japanese bank efficiency? Journal of Banking & Finance, 72, S187–S202. https://doi.org/10.1016/j.jbankfin.2015.04.010
National Bank of Romania. (2016). Survey on the access to finance of the non-financial corporations in Romania and their capacity to withstand adverse financial conditions (Edition June 2016). http://www.bnro.ro/Publicatii-periodice-204.aspx
Neagu, F., & Mărgărit, A. (2005). Riscurile pentru stabilitatea financiara din Romania generate de sectorul populatie. Caiet de studii nr. 14. Banca Naţională a României.
Onete, B. (2003). Sisteme informatice: elemente fundamentale. ASE, Bucuresti.
Pham Vo Ninh, B., Do Thanh, T., & Vo Hong, D. (2018). Financial distress and bankruptcy prediction: An appropriate model for listed firms in Vietnam. Economic Systems, 42(4), 616–624. https://doi.org/10.1016/j.ecosys.2018.05.002
Platt, H., & Platt, M. (1994). Business cycle effects on state corporate failure rates. Journal of Economics and Business, 46(2), 113–127. https://doi.org/10.1016/0148-6195(94)90005-1
Qin, D. (2010). Rise of VAR modelling approach. Journal of Economic Surveys, 25(1), 156–174. https://doi.org/10.1111/j.1467-6419.2010.00637.x
Salman, K., Friedrichs, Y., & Shukur, G. (2011). The determinants of small manufacturing firms: Assessing the macroeconomic factors. International Bussiness Research, 4(3), 22–32. https://doi.org/10.5539/ibr.v4n3p22
Schwarz, G. (1978). Estimating the dimension of a model. Annals of Statistics, 6(2), 461–464. https://doi.org/10.1214/aos/1176344136
Sims, C. A. (1980). Macroeconomics and reality. Econometrica, 48(1), 1–48. https://doi.org/10.2307/1912017
Sims, C. A. (1986). Are forecasting models usable for policy analysis? Quarterly review (Federal Reserve Bank of Minneapolis), Winter, 2–16. https://doi.org/10.21034/qr.1011
Smaranda, C. (2014). Scoring functions and bankruptcy prediction models – case study for Romanian companies. Procedia Economics and Finance, 10, 217–226. https://doi.org/10.1016/S2212-5671(14)00296-2
Stiglitz, J. (2003). Bankruptcy laws: Basic economic principles. In S. Claessens, S. Djankov, & A. Mody (Eds.), Resolution of financial distress: An international perspective on the design of bankruptcy laws (pp. 1–23). The World Bank.
Tian, S., & Yu, Y. (2017). Financial ratios and bankruptcy predictions: An international evidence. International Review of Economics & Finance, 51(C), 510–526. https://doi.org/10.1016/j.iref.2017.07.025
Tsay, R. (2001). Analysis of financial time series. John Wiley & Sons.
Vasiliu, C. (2008). Warehousing – activity which contribute to supply chain performance. The Amfiteatru Economic Journal, 10(24), 94–10. http://www.amfiteatrueconomic.ase.ro/arhiva/pdf/no24/articol_fulltext_pag94.pdf
Vlieghe, G. (2001). Indicators of fragility in the UK corporate sector (Bank of England working papers 146). https://doi.org/10.2139/ssrn.293186
Wadhwani, S. (1986). Inflation, bankruptcy, default premia and the stock market. The Economic Journal, 96(381), 120–138. https://doi.org/10.2307/2233429
Waggoner, D. F., & Zha, T. (1999). Conditional forecasts in dynamic multivariate models. Review of Economics and Statistics, 81(4), 639–651. https://doi.org/10.1162/003465399558508
Watson, M. (1994). Vector autoregressions and cointegration. In R. F. Engle & D. McFadden (Eds.), Handbook of Econometrics (Vol. 4). Elsevier Science Ltd. https://doi.org/10.1016/S1573-4412(05)80016-9
Young, G. (1995). Company liquidations, interest rates and debt. The Manchester School, 63(1), 57–69. https://doi.org/10.1111/j.1467-9957.1995.tb01448.x
Zhang, J., Bessler, D. A., & Leatham, D. J. (2013). Aggregate business failures and macroeconomic conditions: A VAR look at the US between 1980 and 2004. Journal of Applied Economics, 16(1), 179–202. https://doi.org/10.1016/S1514-0326(13)60008-2
Ziković, I. T. (2016). Modelling the impact of macroeconomic variables on aggregate corporate insolvency: Case of Croatia. Economic Research-Ekonomska Istrazivanja, 29(1), 515–528. https://doi.org/10.1080/1331677X.2016.1175727
Akaike, H. (1976). Canonical correlation analysis of time series and the use of an information criterion. In R. K. Mehra & D. G. Lainotis (Eds.), System identification: Advances and case studies (pp. 27–96). Academic Press. https://doi.org/10.1016/S0076-5392(08)60869-3
Altman, E. (1983). Why businesses fail. Journal of Business Strategy, 3(4), 15–21. https://doi.org/10.1108/eb038985
Altman, E. (1993). Company financial distress and bankruptcy (2nd ed.). Wiley & Sons.
Anghel, I. (2002). Falimentul radiografie si predictie. Economica.
Banco de España (2016). Central de Balances. Resultados anuales de las empresas no financieras, Spain. Ed. Banco de España. https://www.bde.es/bde/es/areas/cenbal/
Beca, M., & Nișulescu-Ashrafzadeh, I. (2014). The impact of the economic crisis on the corporate insolvency’s evolution in Romania. Procedia – Social and Behavioral Sciences, 109, 891–895. https://doi.org/10.1016/j.sbspro.2013.12.560
Bernanke, B., & Gertler, M. (1990). Financial fragility and economic performance. Quarterly Journal of Economics, 105, 87–114. https://doi.org/10.2307/2937820
Bernanke, B., & Gertler, M. (1995). Inside the black box: The credit channel of monetary policy transmission. Journal of Economics Perspectives, 9(4), 27–48. https://doi.org/10.1257/jep.9.4.27
Bernanke, B. (1986). Alternative explanations of money-income correlation. Carnegie-Rochester Conference Series on Public Policy, 25, 49–99. https://doi.org/10.1016/0167-2231(86)90037-0
Bhattacharjee, A., Higson C., Holly, S., & Kattuma, P. (2009). Macroeconomic instability and business exit: Determinants of failures and acquisitions of UK firms. Economica, 76(301), 108–131. https://doi.org/10.1111/j.1468-0335.2007.00662.x
Boţel, C. (2002). Cauzele inflaţiei în România, iunie 1997-august 2001. Analiză bazată pe vectorul autoregresiv structural. Caiet de studii nr. 11. Banca Naţională a României.
Campbell, J. A. Lo, & MacKinlay, C. (1997). The econometrics of financial markets. Princeton University Press. https://doi.org/10.1515/9781400830213
Cavallo, A., & Ribba, A. (2015). Common macroeconomic shocks and business cycle fluctuations in Euro area countries. International Review of Economics & Finance, 38, 377–392. https://doi.org/10.1016/j.iref.2015.03.006
Cloyne, J., & Hürgen, P. (2016). The macroeconomic effects of monetary policy: A new measure for the United Kingdom. American Economic Journal: Macroeconmics, 8(4), 75–102. https://doi.org/10.1257/mac.20150093
Cuthbertson, K., & Hudson, J. (1996). The determinants of compulsory liquidations in the UK. The Manchester School, 64(3), 298–308. https://doi.org/10.1111/j.1467-9957.1996.tb00487.x
Dăianu, D., Pîslaru, D., & Voinea, L. (2004). Features of bankruptcy in the Romanian economy: Comparative perspective and analysis. Pre-Accession Impact Studies II, 8. European Institute of Romania, Bucharest. http://ier.gov.ro/en/publication/study-no-8-features-of-bankruptcy-in-the-romanianeconomy-comparative-perspective-and-analysis/
Davis, E. P. (1987). Rising sectoral debt/income ratios: A cause for concern? BIS Economic Papers, No. 20. https://www.bis.org/publ/econ20.htm
Dickey, D. A., & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74(366), 427–431. https://doi.org/10.2307/2286348
Došenović Bonča, P., Tajnikar, M., Ponikvar, N., & Mörec, B. (2018). Firm growth types and key macroeconomic aggregates through the economic cycle. Journal of Business Economics and Management, 19(1), 138–153. https://doi.org/10.3846/16111699.2017.1422798
Enache, C. (2016). Metode cantitative in studiul fenomenelor economice. ASE, Bucuresti.
Everett, J., & Watson, J. (1998). Small business failure and external risk factors. Small Business Economics, 11(4), 371–90. https://doi.org/10.1023/A:1008065527282
Fisher, I. (1933). The debt-deflation theory of great depressions. Econometrica, 1(4), 337–357. https://doi.org/10.2307/1907327
Gonzalez, M., Nafe, J., & Rubio, G. (2018). Macroeconomic determinants of stock market betas. Journal of Empirical Finance, 45, 26–44. https://doi.org/10.1016/j.jempfin.2017.10.003
Guariglia, A., Spaliara, M. E., & Tsoukas, S. (2016). To what extent does the interest burden affect firm survival? Evidence from a panel of UK firms during the recent financial crisis. Oxford Bulletin of Economics and Statistics, 78(4), 576–594. https://doi.org/10.1111/obes.12120
Hamilton, J. D. (1994). Time series analysis. Princeton University Press.
Hannan, E. J., & Quinn, B. G. (1979). The determination of the order of an autoregression. Journal of the Royal Statistical Society, Series B, 41(2), 190–195. https://doi.org/10.1111/j.2517-6161.1979.tb01072.x
Harada, N., & Kageyama, N. (2011). Bankruptcy dynamics in Japan. Japan and the World Economy, 23(2), 119–128. https://doi.org/10.1016/j.japwor.2011.01.002
Hendry, D. F. (1995). Dynamic econometrics. Oxford University Press. https://doi.org/10.1093/0198283164.001.0001
Hernandez Tinoco, M., Holmes, P., & Wilson, N. (2018). Polytomous response financial distress models: The role of accounting, market and macroeconomic variables. International Review of Financial Analysis, 59, 276–289. https://doi.org/10.1016/j.irfa.2018.03.017
Johansen, S., & Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration – with applications to the demand for money. Oxford Bulletin of Economics and Statistics, 52(2), 169–210. https://doi.org/10.1111/j.1468-0084.1990.mp52002003.x
Jones, S., Johnstone, D., & Wilson, R. (2017). Predicting corporate bankruptcy: An evaluation of alternative statistical frameworks. Journal of Business Finance & Accounting, 44(1–2), 3–34. https://doi.org/10.1111/jbfa.12218
Kiyotaki, N., & Moore, J. (1997). Credit cycles. Journal of Political Economy, 105(2), 211–248. https://doi.org/10.1086/262072
Kuběnka, M., & Myšková, R. (2019). Obvious and hidden features of corporate default in bankruptcy models. Journal of Business Economics and Management, 20(2), 368–383. https://doi.org/10.3846/jbem.2019.9612
Leeper, E. M., Sims, C. A., & Zha, T. (1996). What does monetary policy do? Brookings Papers on Economic Activity, 1996(2), 1–78. https://doi.org/10.2307/2534619
Liu, J. (2004). Macroeconomic determinants of corporate failure: Evidence from the UK. Applied Economics, 36(9), 939–945. https://doi.org/10.1080/0003684042000233168
Lutkepohl, H., & Reimers, H. E. (1992). Impulse response analysis of cointegrated systems, Journal of Economics Dunamycs and Control, 16, 53–78. https://doi.org/10.1016/S0304-4076(97)00037-7
Lutkepohl, H. (1991). Introduction to multiple time series analysis. Springer-Verlag. https://doi.org/10.1007/978-3-662-02691-5
Mach, Ł. (2019). Measuring and assessing the impact of the global economic crisis on European real property market. Journal of Business Economics and Management, 20(6), 1189–1209. https://doi.org/10.3846/jbem.2019.11234
MacKinnon, J. G. (1996). Numerical distribution functions for unit root and cointegration tests. Journal of Applied Econometrics, 11(6), 601–618. https://doi.org/10.1002/(SICI)1099-1255(199611)11:6<601::AID-JAE417>3.0.CO;2-T
Mamatzakis, E., Matouse, R., & Vu, A. N. (2016). What is the impact of bankrupt and restructured loans on Japanese bank efficiency? Journal of Banking & Finance, 72, S187–S202. https://doi.org/10.1016/j.jbankfin.2015.04.010
National Bank of Romania. (2016). Survey on the access to finance of the non-financial corporations in Romania and their capacity to withstand adverse financial conditions (Edition June 2016). http://www.bnro.ro/Publicatii-periodice-204.aspx
Neagu, F., & Mărgărit, A. (2005). Riscurile pentru stabilitatea financiara din Romania generate de sectorul populatie. Caiet de studii nr. 14. Banca Naţională a României.
Onete, B. (2003). Sisteme informatice: elemente fundamentale. ASE, Bucuresti.
Pham Vo Ninh, B., Do Thanh, T., & Vo Hong, D. (2018). Financial distress and bankruptcy prediction: An appropriate model for listed firms in Vietnam. Economic Systems, 42(4), 616–624. https://doi.org/10.1016/j.ecosys.2018.05.002
Platt, H., & Platt, M. (1994). Business cycle effects on state corporate failure rates. Journal of Economics and Business, 46(2), 113–127. https://doi.org/10.1016/0148-6195(94)90005-1
Qin, D. (2010). Rise of VAR modelling approach. Journal of Economic Surveys, 25(1), 156–174. https://doi.org/10.1111/j.1467-6419.2010.00637.x
Salman, K., Friedrichs, Y., & Shukur, G. (2011). The determinants of small manufacturing firms: Assessing the macroeconomic factors. International Bussiness Research, 4(3), 22–32. https://doi.org/10.5539/ibr.v4n3p22
Schwarz, G. (1978). Estimating the dimension of a model. Annals of Statistics, 6(2), 461–464. https://doi.org/10.1214/aos/1176344136
Sims, C. A. (1980). Macroeconomics and reality. Econometrica, 48(1), 1–48. https://doi.org/10.2307/1912017
Sims, C. A. (1986). Are forecasting models usable for policy analysis? Quarterly review (Federal Reserve Bank of Minneapolis), Winter, 2–16. https://doi.org/10.21034/qr.1011
Smaranda, C. (2014). Scoring functions and bankruptcy prediction models – case study for Romanian companies. Procedia Economics and Finance, 10, 217–226. https://doi.org/10.1016/S2212-5671(14)00296-2
Stiglitz, J. (2003). Bankruptcy laws: Basic economic principles. In S. Claessens, S. Djankov, & A. Mody (Eds.), Resolution of financial distress: An international perspective on the design of bankruptcy laws (pp. 1–23). The World Bank.
Tian, S., & Yu, Y. (2017). Financial ratios and bankruptcy predictions: An international evidence. International Review of Economics & Finance, 51(C), 510–526. https://doi.org/10.1016/j.iref.2017.07.025
Tsay, R. (2001). Analysis of financial time series. John Wiley & Sons.
Vasiliu, C. (2008). Warehousing – activity which contribute to supply chain performance. The Amfiteatru Economic Journal, 10(24), 94–10. http://www.amfiteatrueconomic.ase.ro/arhiva/pdf/no24/articol_fulltext_pag94.pdf
Vlieghe, G. (2001). Indicators of fragility in the UK corporate sector (Bank of England working papers 146). https://doi.org/10.2139/ssrn.293186
Wadhwani, S. (1986). Inflation, bankruptcy, default premia and the stock market. The Economic Journal, 96(381), 120–138. https://doi.org/10.2307/2233429
Waggoner, D. F., & Zha, T. (1999). Conditional forecasts in dynamic multivariate models. Review of Economics and Statistics, 81(4), 639–651. https://doi.org/10.1162/003465399558508
Watson, M. (1994). Vector autoregressions and cointegration. In R. F. Engle & D. McFadden (Eds.), Handbook of Econometrics (Vol. 4). Elsevier Science Ltd. https://doi.org/10.1016/S1573-4412(05)80016-9
Young, G. (1995). Company liquidations, interest rates and debt. The Manchester School, 63(1), 57–69. https://doi.org/10.1111/j.1467-9957.1995.tb01448.x
Zhang, J., Bessler, D. A., & Leatham, D. J. (2013). Aggregate business failures and macroeconomic conditions: A VAR look at the US between 1980 and 2004. Journal of Applied Economics, 16(1), 179–202. https://doi.org/10.1016/S1514-0326(13)60008-2
Ziković, I. T. (2016). Modelling the impact of macroeconomic variables on aggregate corporate insolvency: Case of Croatia. Economic Research-Ekonomska Istrazivanja, 29(1), 515–528. https://doi.org/10.1080/1331677X.2016.1175727