November 2016
1. Introduction
We explore the determinants of corporate failure in Australia. Our paper is motivated by two
observations: corporate failure is closely linked to financial stability risks, and it is also
associated with fluctuations in the business cycle. Despite these close links, there has been
little research to date on why Australian companies fail.
The link between aggregate corporate failures and the business cycle is shown in Figure 1. The
aggregate failure rate typically rises during economic downturns. This is most evident in the
early 1990s…
