Natalia Isachenkova

Ownership Structure and Investment Finance in Transition Economies: A Survey of Evidence from Large Firms in Hungary and Poland

Using survey data on 157 large private Hungarian and Polish companies this paper investigates links between ownership structures and CEOs’ expectations with regard to sources of finance for investment. The Bayesian estimation is used to deal with the small sample restrictions, while classical methods provide robustness checks. We found a hump-shaped relationship between ownership concentration and expectations of relying on public equity. The latter is most likely for firms where the largest investor owns between 25 percent and 49 percent of shares, just below the legal control threshold. More profitable firms rely on retained earnings for their investment finance, consistent with the ‘pecking order’ theory of financing. Finally, firms for which the largest shareholder is a domestic institutional investor are more likely to borrow from domestic banks.

Failure risk: a comparative study of UK and Russian firms

Abstract Using data for corporate insolvency in Russia for 1995–1996, failure risk is modelled by the logit estimator. The sample size is controlled by the bootstrap estimates of model statistics and by comparison with a similar random sample drawn for the UK over recession years 1990–1991. The model for Russia indicates that profitability is the dominant predictor as compared with gearing and liquidity for the UK. In the context of softer budget constraints and the common use of barter in Russian payments, the results suggest that policymakers and practitioners should pay specific attention to the profit position of companies.

Acquisition, Insolvency and Managers in UK Small Companies

This paper investigates the determinants of involuntary insolvency and acquisition in UK small and medium-sized companies. Using a competing risks model and data from the survey database of the ESRC CBR at the University of Cambridge, we draw specific attention to the impact of managerial characteristics. The explanatory power of financial variables, firm size, and firm age, highlighted by previous studies, is confirmed. In addition, the results indicate that .rms run by entrepreneurial managers with higher human capital and intentions to pursue a strategy of growth have greater survival prospects and are less likely to be forced into insolvency or become acquired.

Aggregate Economy Risk and Company Failure: An Examination of UK Quoted Firms

Considerable attention has been directed in the recent finance and economics literature to issues concerning the effects on company failure risk of changes in the macroeconomic environment. This paper examines the accounting ratio-based and macroeconomic determinants of insolvency exit of UK large industrials during the early 1990s with a view to improve understanding of company failure risk. Failure determinants are revealed from estimates based on a cross-section of 369 quoted firms, which is followed by an assessment of predictive performance based on a series of time-to-failure-specific logit functions, as is typical in the literature. Within the traditional for cross-sectional data studies framework, a more complete model of failure risk is developed by adding to a set of traditional financial statement-based inputs, the two variables capturing aggregate economy risk - one-year lagged, unanticipated changes in the nominal interest rate and in the real exchange rate. Alternative estimates of prediction error are obtained, first, by analytically adjusting the apparent error rate for the downward bias and, second, by generating holdout predictions.More complete, augmented with the two macroeconomic variables models demonstrate improved out-ofestimation-sample classificatory accuracy at risk horizons ranging from one to four years prior to failure, with the results being quite robust across a wide range of cut-off probability values, for both failing and non-failed firms. Although in terms of the individual ratio significance and overall predictive accuracy, the findings of the present study may not be directly comparable with the evidence from prior research due to differing data sets and model specifications, the results are intuitively appealing. First, the results affirm the important explanatory role of liquidity, gearing, and profitability in the company failure process. Second, the findings for the failure probability appear to demonstrate that shocks from unanticipated changes in interest and exchange rates may matter as much as the underlying changes in firm-specific characteristics of liquidity, gearing, and profitability. Obtained empirical determinants suggest that during the 1990s recession, shifts in the real exchange rate and rises in the nominal interest rate, were associated with a higher propensity of industrial company to exit via insolvency, thus indicating links to a loss in competitiveness and to the effects of high gearing. The results provide policy implications for reducing the company sector vulnerability to financial distress and failure while highlighting that changes in macroeconomic conditions should be an important ingredient of possible extensions of company failure prediction models.