Failure risk: A comparative study of UK and Russian firms

Abstract

Based on data for corporate insolvency in Russia for 1995-96 a model of failure risk is developed using the familiar logit estimator. The sample size is controlled by the bootstrap estimates of model statistics and by comparison with a similar random sample drawn for the UK over recessionary years, 1990-91. It has been common to apply models for the UK and USA to Russian data but this would appear poor practice in the context of an economy in transition. The model for Russia indicates that profitability is the dominant predictor as compared with gearing and liquidity for the UK. In the context of softer budget constraints and the common use of barter in Russian payments, the results suggest that policy makers and practitioners should pay specific attention to the profit position of companies.