Business Failures and Economy-wide Factors in Australia 1973-1995: An Empirical Analysis

This paper presents an empirical analysis of business failures, bank advances/gross domestic product (GDP) ratio, unemployment, price level and stock market index in Australia using annual data for the period 1973-1995. After testing the relevant variables for unit roots, the absence of cointegration among them forced the investigation to be conducted using the general-to-specific modelling approach within the framework of an autoregressive distributed lag (ADL) model. Econometric results generated in this study show that the number of business failures has a tendency to increase with high bank advances/GDP ratio (excessive debt), level of unemployment and price level while the stock market index is negatively related to the number of business failures.