Competing risks analysis of the determinants of business exit

The difficulties experienced by firms and institutions during the Global Financial Crisis (GFC) have considerably increased the number of corporate collapses and the analysis of the determinants of financial distress has attracted growing attention by researchers and practitioners. Prior to a corporate failure, the firm’s financial status is frequently in distress. Consequently, finding a method to predict corporate financial distress few step early is clearly a matter of considerable interest to investors, creditors, auditors and other stakeholders. The aim of the work is to propose a competing risk approach to analyse the determinants of the probability of different exit forms and investigate the differences in the factors driving firms to exit the market. The theoretical intuition has been supported by some empirical finding. In particular referring to a sample of Italian building firms, we consider different mutually exclusive business exit status i.e liquidation, bankruptcy and a third residual category that include firms that exit the market for any other reasons. The effect of microeconomic indicators and company-specific variables on these three states are examined. To this end, we develop a competing risk hazard model in order to identify the factors leading firms to exit the market and compare the predictive performance over single risk approach by means of same accuracy measure.