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Storm clouds hang over UK

Back in June on this blog, I asked the question whether we were experiencing
a calm before the storm, as the effects of the credit crunch, rising fuel and
utility prices had yet to be seen in any insolvency stats.

Like the weather this summer, storm clouds are beginning to settle over
corporate Britain, too, and now government figures are bearing this out. The
liquidation figures for the second quarter of 2008 in England and wales hit
3,689 ­ the worst for five years. A lot has to happen to reach the liquidation
levels seen at the peak of the last economic downturn of 1992 (24,425
liquidations in total), but the signs are pointing that way I’m afraid.

Martin Williams, MD Graydon

Is Deloitte the perfect firm?

Given the desire of the Big Four to again rebuild their consulting arms, I
re-examined the case of Deloitte. I have written before about the challenges
that even Deloitte has in this environment.

As an audit firm, the constraints, regulations and requirements of the new
‘outside’ regulators, the PCAOB, have to take precedence.

Interestingly, even though Deloitte has a consulting arm and an audit arm, it
is not the one struggling to comply with the independence rules. They have
stayed out of trouble in that regard, that we know of.
It’s the others who still don’t understand about independence, regardless of
their past, that are still getting nailed for signing deals that compromise the
objectivity and integrity of their audit opinions.
Francine McKenna

Do recessions raise productivity?

This is certainly theoretically possible. But is it true?
Here’s some scraps of contrary evidence:

  • The proportion of plants that close in any given year doesn’t change much in
    recession or booms. This suggests recession doesn’t winnow out inefficient
    firms. Instead, recessions might raise productivity by stopping unproductive
    firms from entering an industry or growing.
  • Geroski and Gregg’s study of the 1990’s recession found that it was very
    difficult to predict which firms would suffer badly in recession. This suggests
    that measurably (perhaps an important qualifier) inefficient firms don’t
    necessarily shrink in recession. And they found only weak evidence that firms
    effectively restructured in recessions.

Chris Dillow

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