We use a total of four predictor variables to test
our hypotheses. Our measure of industry competitive
conditions is derived from survey items in which the
bankruptcy trustees were asked to report on the extent
to which the firm was affected by: (a) changes in market
conditions, (b) changes in technology, and (c) legislative
changes. Respondents used a five-point Likert-type scale
to indicate the extent to which a given factor contributed
to the bankruptcy. Principal components analysis indicated
that these items loaded strongly on a single factor
with an eigenvalue of 1.84. (See Appendix for details
of survey questions, factor loadings, and alpha coefficients.)
The derived factor variable serves as our proxy
for the level of industry turbulence and change. This measure was used to evaluate our hypothesis on the liability
of obsolescence (H2).