Document Type

Journal Article


The firm’s performance and health are explained by firm-specific factors such as capital structure, ownership structure, and cash flow. However, corporate performance and failure are not solely determined by the firm’s characteristics alone, being in part related to the environmental economy (macroeconomic factors). A firm’s performance and distress (failure) can be significantly influenced by the performance of the macroeconomy. For example, the failure risk of a geared firm is augmented by macroeconomic instability and, therefore, the determinants of failure should also be seen in a macroeconomic context. Relevant to our objective of an integrated analysis of the impact of firm-level and aggregate economy factors, several empirical studies on the aggregate liquidation rate are based on the experience of developed countries' firms. These studies have produced several stylised facts regarding the strong impact of macroeconomic factors such as inflation, interest rate movement, exchange rate, money supply, and gross domestic product (GDP) on failure risk.