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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
Author(s) -
Guariglia Alessandra,
Spaliara MarinaEliza,
Tsoukas Serafeim
Publication year - 2016
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/obes.12120
Subject(s) - financial crisis , interest rate , market liquidity , affect (linguistics) , monetary economics , economics , estimation , limiting , panel data , debt , finance , business , financial system , macroeconomics , econometrics , mechanical engineering , linguistics , philosophy , management , engineering
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.