Macroeconomic factors and corporate financial fragility in Malaysia / Nurziya Muzzawer

Financial fragility is a priority topic for many policymakers, practitioners, and researchers due to its impact on the economy. Financial fragility is also termed as financial instability leading to financial crisis. Most of the researcher believed that the increase in financial fragility is caused by the vulnerability in banking sector. Besides, majority of previous studies were only concentrated in firm level data; and only a few researchers took into consideration the influence of macroeconomic variables to corporate failures. Similarly, in Malaysia not many studies have paid attention on using macroeconomic variables as explanatory variables for corporate financial fragility. Therefore, the purpose of this study is to fill gap by examining the relationship between macroeconomic variables and corporate financial fragility in Malaysia. Corporate financial fragility is measured by corporate failure rate. Meanwhile, macroeconomic variables consist of gross domestic product (GDP), inflation rate (consumer price index), interest rate (average lending rate), unemployment rate, birth of new company, corporate profits and real wages. The data set was taken from years 1998 to 2015 on a quarterly basis. By employing Autoregressive Distributed Lag (ARDL) bounds approach, the analysis found that there is a significant long-run and short-run relationship between macroeconomics and corporate financial fragility in Malaysia. Interestingly, before GFC 2008 found that most of the macroeconomic have significant long-run and short-run relationship with corporate financial fragility. However, after Global Financial Crisis 2008 revealed that most of macroeconomics found does not have long-run relationship, still, there is a significant short-run relationship. As a conclusion, based on the whole period of study found that birth of new companies and real wages have a positive long-run relationship, while interest rate has a negative short-run relationship and real wages has mixed short-run relationship with corporate failure rate in Malaysia.