Corporate Failure Rates and the Impact of the 1986 Insolvency Act

Interest rates are important because they reflect the monetary policy manifestation. Increase in inflation rates also result in increase in failure rates. Lastly, the age of a business is important because the lesser the age of a business, the more chances are that it would not survive.
It was assumed that the failure rates would have a positive relationship with interest rates, cost of use of capital, price levels and company formation and on the other hand, it would have a negative relationship with profits and credit availability. An error correction model was constructed which connected these variables with failure rates. Also, ADF test and PP test were carried out to find out the long term effects of the variables mentioned above. Regression analysis was also done on an equation formed by Johanson method (1982).
The results from the Chow test show that the imposition of the Insolvency act of 1986 has had some effects on the failure rates. Also, the coefficient of the dummy variable was also negative and statistically important which makes it possible for us to conclude that the failure rates decreased since the introduction of the Insolvency act.
Corporate Failure Rates and the Impact of the 1986 Insolvency Act is a very extensively researched case study. …
Critique
Corporate Failure Rates and the Impact of the 1986 Insolvency Act is a very extensively researched case study. This study aims to find evidence of the effectiveness of the Insolvency Act of 1986 by studying time series data of failure rates after and before the act was introduced. It has studied previous studies, collected present data and carried out statistical analysis on that data and compared the results.
The abstract in the beginning is concise and clear as it gives a brief account of what is in the paper. All the important points regarding the previous studies, procedure, results and conclusion are given. Next comes introduction and the introduction also sets a base that makes us ready for what is coming next. It briefly describes the Insolvency Act and its effects on businesses. This not only makes it very easy to grasp the main idea but it also makes it understandable to anyone who is studying the area under discussion for the first time. Technical terms such as ‘wrongful trading’ and many others that were used throughout the case study were straightforwardly defined right after they were used, which made the matter very comprehensible and easy to understand.
The literature that is included in the case study is just enough to give good empirical evidence regarding the subject matter. Every fact that is given is either supported with a previous data, literature of present findings. This case study aims to see the effects of this act 11 years after its implementation therefore it will help us know its long term effects. The limitations of previous studies are also given when it was mentioned that 2 or 3 years is not a long enough time to adequately study the long term