What explains business cessation? A century of corporate bankruptcies and liquidations in the Netherlands

Using a novel dataset of Dutch exchange-listed corporations, we demonstrate the importance of longitudinal data in understanding rare corporate events. We study the factors which explain corporate bankruptcies and liquidations across the twentieth century. We have two main findings. First, cessation probabilities significantly declined during the twentieth century. Until 1940, shareholder-led liquidations were dominant, while creditor-led bankruptcies were the main type of business cessation after 1960. Second, the determinants of cessation changed dramatically. Prior to 1940s, non-financial factors such as corporate governance and interlocking directorates explained roughly 40 per cent of the variation in cessation probabilities. Firm profitability was also a key determinant. But after the 1960s, approximately 90 per cent of the variation was explained by financial factors; long-term debt in particular became an important determinant. We argue that the change in the probabilities, types and determinants of corporate cessation events is down to a paradigm shift in Dutch corporate governance, from a liberal shareholder-dominated regime to a stakeholder-based system.