Economic and financial determinants of firm bankruptcy: evidence from the French food industry

Lilia Aleksanyan,Jean-Pierre Huiban

doi:10.1007/s41130-016-0020-7

Abstract

Abstract Despite the strong resilience of the French food industry during the recent economic crisis, the bankruptcy rate for this sector has dramatically increased since 2010. This paper focuses on the economic and financial determinants of firm exit due to bankruptcy in the French food industry and compares them with those for other manufacturing industries. Based on a large sample of firm-level data for the period 2001–2012, we show that the bankruptcy risk pattern differs between food industry firms and other manufacturing firms. Firm productivity is an important determinant of a firm’s probability of going bankrupt; productivity begins deteriorating 3 years before a failure. Controlling for firm productivity, we also show that credit cost has a positive and significant impact on the probability of bankruptcy. However, we observe smaller effect of credit cost on firms’ bankruptcy risk. In contrast, productivity appears to have an important beneficial effect on bankruptcy risk reduction.

Highlights

Every year in France, more than 3500 manufacturing companies file for bankruptcy (Stat Info 2013), of which nearly one third are declared in the food industries.1 The French food industries demonstrated considerable resiliency compared to the manufacturing industry during the recent economic crisis (Aleksanyan 2015)
This situation deteriorated over the period between 2010 and 2012 for food industry firms, and the French food industry has reported a dramatic increase in bankruptcy cases
We find that the productivity effect is lower for food industry firms compared to other manufacturing firms

Summary

Introduction

Every year in France, more than 3500 manufacturing companies file for bankruptcy (Stat Info 2013), of which nearly one third are declared in the food industries. The French food industries demonstrated considerable resiliency compared to the manufacturing industry during the recent economic crisis (Aleksanyan 2015). According to data from the Banque de France and our calculations, the annual bankruptcy rate was approximately 2.7 %2 in 2009 in the manufacturing industry compared with 0.8 % in the food industry. This disparity is often explained by the inertia of household food and beverage consumption, which supported firm activity during the crisis. This situation deteriorated over the period between 2010 and 2012 for food industry firms, and the French food industry has reported a dramatic increase in bankruptcy cases.. This situation deteriorated over the period between 2010 and 2012 for food industry firms, and the French food industry has reported a dramatic increase in bankruptcy cases. The bankruptcy rate of the food industries nearly doubled between 2010 and 2012 (Fig. 1)

Objectives

Findings

Conclusion