Influence of Price Variability and Financial Ratios on Business Failure in the Atlantic Salmon Industry

Abstract

Despite its rapid growth during the last three decades, salmon farming is risky because of production risk and dynamic market conditions, resulting in volatile salmon price over time. Price variability raises revenue uncertainty, affecting financial performance, capital structure, and survival probability. This study evaluates how price variability and financial ratios affect business failure in the Norwegian salmon farming industry. An initial statistical analysis indicates a positive correlation between price variability and firm exit cases. The estimation results of the nonproportional hazard model show a positive impact of price variability on the hazard rate. Among financial ratios, retained earnings/total assets and equity/total liabilities influence the hazard rate jointly with price variability. To this end, we discussed the implications regarding risk management and the sustainable growth of the aquaculture industry.