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Do structural constraints of the industry matter for corporate failure prediction?

Do structural constraints of the industry matter for corporate failure prediction? We hypothesize and find empirical evidence that two structural constraints of the industry are informative in the corporate failure prediction, industry concentration and dependence on customers and suppliers. Using an extensive database on corporate failures and bankruptcies in the U.S. market from 1998 to 2009 we find that the probabilities of failure and bankruptcy are significantly higher for firms in highly concentrated industries. The probability of bankruptcy is higher for firms in industries with stronger customer dependency, but this factor does not affect failure probabilities. Also in the case of failures the model's fit is noticeably higher than in the case of bankruptcies. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Investment Analysts Journal Taylor & Francis

Do structural constraints of the industry matter for corporate failure prediction?

Chiu, W-C; Peña, Jl; Wang, C-W
Investment Analysts Journal , Volume 42 (78): 17 – Jan 1, 2013
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Publisher
Taylor & Francis
Copyright
© 2013 Taylor and Francis Group, LLC
ISSN
2077-0227
eISSN
1029-3523
DOI
10.1080/10293523.2013.11082562
Publisher site
See Article on Publisher Site

Abstract

We hypothesize and find empirical evidence that two structural constraints of the industry are informative in the corporate failure prediction, industry concentration and dependence on customers and suppliers. Using an extensive database on corporate failures and bankruptcies in the U.S. market from 1998 to 2009 we find that the probabilities of failure and bankruptcy are significantly higher for firms in highly concentrated industries. The probability of bankruptcy is higher for firms in industries with stronger customer dependency, but this factor does not affect failure probabilities. Also in the case of failures the model's fit is noticeably higher than in the case of bankruptcies.

Journal

Investment Analysts Journal – Taylor & Francis

Published: Jan 1, 2013

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