Monetary Policy and the Survival Analysis of the Firms in Pakistan

Shabbir, Safia (2017): Monetary Policy and the Survival Analysis of the Firms in Pakistan.

Abstract

Using the information on 629 companies listed at Karachi stock exchange over a period of 40 years (1975-2014), this study finds out the effect of monetary policy and industrial dynamics over the hazard rate of both the financial and non-financial companies. The study concludes that monetary contraction increases the probability of exit of the companies by 44 percentage points, while LSM growth and age reduces the hazard rate. Further companies in textiles are most likely to exit, while firms working in food & beverages, cement & construction and chemical & engineering are less likely to exit. On the other hand, credit growth increases the risk of exit for the financial companies and rise in weighted average lending rate reduces the probability of exit. Moreover, well-established companies are less likely to leave the market.

• Item Type: MPRA Paper
• Language: English
• Keywords: Monetary Policy, Firm behaviour, Hazard Rate, Survival Analysis
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies

References

Abildgren, Kim.,BirgitteVolundBuchholst and Jonas Staghoj, (2013). “Bank-firm relationships and the survival of non-financial firms during the financial crisis 2008- 2009”, European Central Bank Working Paper Series NO 1516 Abraham, Jean Marie, Thomas DeLeireanf Anne beeson Royalty (2009). “Moral Hazard Matters: Measuring Relative Rates of Underinsurance Using Threshold Measures”, National Bureau Of Economic Research, Working Paper 15410 Arrighetti, A. and Vivarelli, M. (1999). ‘The rôle of innovation in the postentry performance of new small firms: Evidence from Italy’, Southern Economic Journal vol. 65, pp. 927-39 Audretsch, D.B. and Mahmood, T. (1994). ‘Firm selection and industry evolution: The post-entry performance of new firms’, Journal of Evolutionary Economics vol. 4, pp. 243-60 Bandopadhyaya, Arindam, (1994)."An Estimation of the Hazard Rate of Firms under Chapter 11 Protection," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 346-50 Bhattacharjee, Arnab (2005)."Models of Firm Dynamics and the Hazard Rate of Exits: Reconciling Theory and Evidence using Hazard Regression Models,"CRIEFF Discussion Papers 0502, Centre for Research into Industry, Enterprise, Finance and the Firm. Bruderl, J., Preisendorfer, P., and Ziegler, R. (1992). Survival chances of Newly Founded Business.American Sociological Review, 57:227–242. Buddelmeyer, H., Jensen, P.H. and Webster, E. (2006). “Innovation and the Determinants of Firm Survival”, IZA discussion paper no. 2386, October, Bonn, IZA. Clementi, G. L. and Palazzo, D. (2014). “Entry, Exit, Firm Dynamics, and Aggregate Fluctuations,” mimeo. New York University and Boston University. Choudhary et al. (2012). “Bank Lending and Monetary Shocks: Evidence from a Developing Economy”, SBP working paper Series, WP 45. Cox DR. (1972). “Regression models and life tables”. JR Stat Soc B. 1972;34:187–220. Howell, Anthony ,Canfei He, Yang Rudai,and Fan Cindy, (2009),“A Survival Analysis of New Chinese Start-Ups: Mediating the Innovation-Survival” UCLA working paper Esteve-Pérez, S.; Máñez-Castillejo, J. A.; Rochina-Barrachina, M. E. Y Sanchiś -Llopis, J. A. (2005): “A Survival Analysis of Manufacturing Firms in Export Markets”, comunicación en lasXXXI Jornadas de Economía Industrial, Bilbao. Falk, M. (2013). “A survival analysis of ski lift companies”, In: Tourism Management 36 (3), 377-390. Fugazza, M. & McLaren, A. (2014), “Market access, export performance and sur- vival: Evidence from peruvian firms”, Forthcoming in the Review of International Economics 22(3), 599–624. GiovannettiGiorgia, Giorgio Ricchiuti and MargheritaVelucchi, (2011). "Size, innovation and internationalization: a survival analysis of Italian firms," Applied Economics, Taylor & Francis Journals, vol. 43(12), pages 1511-1520. Helmers, Christian and Mark Rogers, (2008)."Innovation and the Survival of New Firms Across British Regions," Economics Series Working Papers 416, University of Oxford, Department of Economics. Holmes, P., A. Hunt and I. Stone, (2010)."An analysis of new firm survival using a hazard function," Applied Economics, Taylor & Francis Journals, vol. 42(2), pages 185-195. Kilos, Vira. (2008). “Firm’s Performance Analysis Using Survival Method”, National University “Kyiv-Mohyla Academy” Łobos,M. Szewczyk, K.,(2012). “Survival analysis : A case study of micro and small enterprises in Dolnosĺ as̨ kie and OpolskieVoivodship (Poland)”, *in:+ Central European Review of Economic Issues Ekonomická Revue, Vol. 15, No. 4, 2012, pp. 207-216. 
 Mata, J. and Portugal, P. (1994). ‘Life duration of new firms’, Journal of Industrial Economics vol. 42, pp. 227-45 Mian, A. R., &Khwaja, A. I. (2004). Do lenders favor politically connected firms? Rent provision in an emerging financial market. Rent Provision in an Emerging Financial Market (December 2004). Polat ,Berna, and Charles WL Hill, (2007). "Failure of New Ventures: A Survival Analysis of the Telecommunications Industry." Association for Business and Economics Research (ABER) Porter, M. (1990). The Competitive Advantage of Nations. Free Press, Free Press. Shabbir, Safia. (2012). “Balance Sheet Channel of Monetary Transmission in Pakistan: An Empirical Investigation”, SBP Research Bulletin, Vol 8, No1, 2012. Shabbir, Safia (2013). “Implications of Monetary Policy for Corporate Sector and Economic Growth in Pakistan”, SBP Working Paper Series, WP61 Wagner, J. (1999). Who exits from German manufacturing industries and why? Evidence from the Hanover firm-panel study.In Audretsch, D. and Thurik, A., editors, Innovation, Industry Evolution and Employment.Cambridge University Press, Cambridge.