Do Structural Constraints of the Industry Matter for Corporate Failure Prediction?

We hypothesize and find empirical evidence that two structural constraints of the industry are informative in the corporate failure prediction, industry concentration and dependence on customers and suppliers. Using an extensive database on corporate failures and bankruptcies in U.S. market from 1998 to 2009, we find that the probabilities of failure and bankruptcy are significantly higher for firms in highly concentrated industries. The probability of bankruptcy is higher for firms in industries with stronger customer dependency but this factor does not affect failure probabilities. Also in the case of failures the model's fit is noticeably higher than in the case of bankruptcies