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All Journal JABM JOURNAL of ACCOUNTING - BUSINESS & MANAGEMENT
MalcolmMalcolm Smith Malcolm Smith
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Decision Sciences, Operations Research & Management Economics, Econometrics & Finance Other

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Macroeconomic Variables and Financial Distress Dah-Kwei Liou; MalcolmMalcolm Smith Malcolm Smith
Journal of Accounting, Business and Management (JABM) Vol 14 No 1 (2007): October
Publisher : STIE Malangkucecwara

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Abstract

A number of authors have suggested that macroeconomic factors impact significantly on the incidence of financial distress, and subsequently on corporate failure. However, macroeconomic factors rarely, if ever, appear as variables in predictive models seeking to identify distress and failure; the modellers generally suggest that the impact of macroeconomic factors has already been accounted for by financial ratio variables. This paper reports on a systematic study of this area, by examining the relationship between corporate failure and macroeconomic factors for UK manufacturing industry, to identify the most significant variables and to evaluate their usefulness in a predictive context. The outcomes of the study suggest that several macroeconomic variables are closely associated with failure, and have predictive value in specifying the relationship between financial distress and eventual failure.
Co-Authors Dah-Kwei Liou