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To What Extent Does the Interest Burden Affect Firm Survival? Evidence from a Panel of UK Firms during the Recent Financial Crisis

To What Extent Does the Interest Burden Affect Firm Survival? Evidence from a Panel of UK Firms... Using a panel of mainly unquoted UK firms over the period 2000–09, we document a significant effect of changes in the interest burden from debt‐servicing on firm survival. The effect is found to be stronger during the recent financial crisis compared with more tranquil periods. Furthermore, the survival chances of bank‐dependent, younger, and non‐exporting firms are most affected by changes in the interest burden, especially during the crisis. Our results are robust to using different estimation methods and different interest burden measures They suggest that one way for policymakers to mitigate the effects of financial crises by limiting firm failures would be to prevent financing costs from rising, especially for those firms more likely to face liquidity constraints. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Oxford Bulletin of Economics & Statistics Wiley

To What Extent Does the Interest Burden Affect Firm Survival? Evidence from a Panel of UK Firms during the Recent Financial Crisis

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References (48)

Publisher
Wiley
Copyright
Copyright © 2016 The Department of Economics, University of Oxford and John Wiley & Sons Ltd
ISSN
0305-9049
eISSN
1468-0084
DOI
10.1111/obes.12120
Publisher site
See Article on Publisher Site

Abstract

Using a panel of mainly unquoted UK firms over the period 2000–09, we document a significant effect of changes in the interest burden from debt‐servicing on firm survival. The effect is found to be stronger during the recent financial crisis compared with more tranquil periods. Furthermore, the survival chances of bank‐dependent, younger, and non‐exporting firms are most affected by changes in the interest burden, especially during the crisis. Our results are robust to using different estimation methods and different interest burden measures They suggest that one way for policymakers to mitigate the effects of financial crises by limiting firm failures would be to prevent financing costs from rising, especially for those firms more likely to face liquidity constraints.

Journal

Oxford Bulletin of Economics & StatisticsWiley

Published: Aug 1, 2016

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