Liquidity and the choice to abandon production in declining industries

The study presents tests of several theoretical hypotheses that are potential determinants of the choice to abandon production in declining industries. A binary qualitative choice model of the abandonment decision is estimated. The probability of choosing abandonment is found to be positively relate...

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Bibliographic Details
Published inCorporate Ownership and Control Vol. 5; no. 1; pp. 418 - 431
Main Author Caton, Gary L.
Format Journal Article
LanguageEnglish
Published 01.10.2007
Subjects
Cash flow
Economic efficiency
Liquidity
Production capacity
Volatility
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Summary:The study presents tests of several theoretical hypotheses that are potential determinants of the choice to abandon production in declining industries. A binary qualitative choice model of the abandonment decision is estimated. The probability of choosing abandonment is found to be positively related to the firm’s debt ratio, and negatively related to liquidity at the firm level, the level of efficiency of the operating unit, and uncertainty about liquidity at the operating unit level as measured by output and input price variability. Results are also presented for a multinomial choice model accounting for the full menu of capacity decisions open to the firm over time. The results are robust across all specifications as well as to alternative statistical assumptions
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:1727-9232
1810-3057
DOI:10.22495/cocv5i1c3p2