Bankruptcy risk and the effects of conservative policy for 1979–81

Abstract

This paper considers the effects of the first two years of the current Conservative government as reflected in the change (if any) in the characteristics of bankruptcies amongst quoted companies. It applies a probit model to a sample of bankrupt and non-bankrupt quoted companies drawn from the period 1976–81 a sample subsequently broken up into Labour and Conservative subsamples. Using return on assets, size, gearing, the ratio of equity cash flow to sales, the ratio of direct exports to sales, and industry growth, as explanatory variables of bankruptcy risk and adopting a relativistic view of bankruptcy, the paper finds that the change from a Labour to a Conservative government in 1979 seems to have had no effect on the way in which relative performance, at both the firm and industry level (as measured using the six variables mentioned above) translates into bankruptcy risk.