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

19 Pages Posted: 6 Jul 2016

See all articles by Alessandra Guariglia

Alessandra Guariglia

University of Birmingham - Department of Economics

Marina‐Eliza Spaliara

University of Glasgow - Adam Smith Business School

Serafeim Tsoukas

University of Glasgow - Adam Smith Business School

Date Written: August 2016

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.

Suggested Citation

Guariglia, Alessandra and Spaliara, Marina-Eliza and Tsoukas, Serafeim, To What Extent Does the Interest Burden Affect Firm Survival? Evidence from a Panel of UK Firms During the Recent Financial Crisis (August 2016). Oxford Bulletin of Economics and Statistics, Vol. 78, Issue 4, pp. 576-594, 2016, Available at SSRN: https://ssrn.com/abstract=2803659 or http://dx.doi.org/10.1111/obes.12120

Alessandra Guariglia (Contact Author)

University of Birmingham - Department of Economics ( email )

United States

Marina-Eliza Spaliara

University of Glasgow - Adam Smith Business School ( email )

Glasgow, Scotland
United Kingdom

Serafeim Tsoukas

University of Glasgow - Adam Smith Business School ( email )

Glasgow, Scotland
United Kingdom

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