2009/06 LEM Working Paper Series


Financial and Economic Determinants of Firm Default

Giulio Bottazzi, Marco Grazzi, Angelo Secchi and Federico Tamagni
  Keywords
 
firm default, financial indicators, selection and growth dynamics, kernel densities, stochastic equality, bootstrap probit regressions, distance to default


  JEL Classifications
 
C14, C25, D20, G30, L11


  Abstract
 
This paper investigates the relevance of financial and economic variables as determinants of firm defaults. Our analysis is not limited to publicly traded companies but extends to a large sample of limited liability firms. We consider size, growth, profitability and productivity together with a standard set of financial indicators. Non parametric tests allow to asses to what extent defaulting firms differ from the non-defaulting group. Bootstrap probit regressions confirm that economic variables play both a long and short term effect. Our findings are robust with respect to the inclusion of Distance to Deafult and risk ratings among the regressors.


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