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Default rates in the loan market for SMEs: Evidence from Slovakia

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  • Fidrmuc, Jarko
  • Hainz, Christa

Abstract

Financial markets in emerging economies are often perceived as more risky than those in developed countries. We investigate whether this is true for loans to SMEs using a unique unbalanced panel of nearly 700 loans made to SMEs in Slovakia between 2000 and 2005. Several probit and panel probit models show that liquidity and profitability factors are important determinants of SME defaults. Moreover, we find that indebtedness significantly increases the probability of default. Liability as proxied by the legal form of SMEs has important incentive effects. Finally, there exist significant differences between sectors. We show that default rates and factors converged to values found in developed financial markets.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Systems.

Volume (Year): 34 (2010)
Issue (Month): 2 (June)
Pages: 133-147

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Handle: RePEc:eee:ecosys:v:34:y:2010:i:2:p:133-147

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Keywords: SMEs Banking Loan default Incentives Asymmetric information Probit Financial crisis;

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Cited by:
  1. Lawless, Martina & McCann, Fergal, 2012. "Determinants of default: Evidence from a sector-level panel of Irish SME loans," Research Technical Papers 03/RT/12, Central Bank of Ireland.
  2. Weber, Ron & Musshoff, Oliver, 2012. "Microfinance for Agricultural Firms- Credit Access and Loan Repayment in Tanzania," 123rd Seminar, February 23-24, 2012, Dublin, Ireland, European Association of Agricultural Economists 122552, European Association of Agricultural Economists.
  3. Jarko Fidrmuc & Caroline Klein & Robert W.R. Price & Andreas Wörgötter, 2013. "Slovakia: A Catching Up Euro Area Member In and Out of the Crisis," OECD Economics Department Working Papers 1019, OECD Publishing.
  4. Fidrmuc, Jarko & Wörgötter, Andreas, 2014. "Euro Membership, Foreign Banks And Credit Developments During The Financial Crisis In Slovakia: A Case Study," Acta Oeconomica et Informatica, Faculty of Economics and Management, Slovak Agricultural University in Nitra (FEM SPU);Association of Agricultural Economists in Slovakia (APES), Faculty of Economics and Management, Slovak Agricultural University in Nitra (FEM SPU);Association of Agricultural Economists in Slovakia (APES), vol. 17(1).
  5. Fidrmuc, Jarko & Horváth, Roman & Horváthová, Eva, 2008. "Corporate Interest Rates and the Financial Accelerator in the Czech Republic," Discussion Papers in Economics 7191, University of Munich, Department of Economics.
  6. Chang, C. & Liao, G. & Yu, X. & Ni, Z., 2009. "Information from Relationship Lending: Evidence from China," Discussion Paper, Tilburg University, Center for Economic Research 2009-39 S, Tilburg University, Center for Economic Research.
  7. McCann, Fergal & McIndoe-Calder, Tara, 2012. "Determinants of SME Loan Default: The Importance of Borrower-Level Heterogeneity," Research Technical Papers 06/RT/12, Central Bank of Ireland.
  8. Fantazzini, Dean & DeGiuli, Maria Elena & Figini, Silvia & Giudici, Paolo, 2009. "Enhanced credit default models for heterogeneous SME segments," Journal of Financial Transformation, Capco Institute, Capco Institute, vol. 25, pages 31-39.
  9. Weber, Ron & Musshoff, Oliver, 2012. "Microfinance for agricultural firms - What can we learn from bank data?," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil, International Association of Agricultural Economists 126708, International Association of Agricultural Economists.
  10. Chiara Pederzoli & Grid Thoma & Costanza Torricelli, 2013. "Modelling Credit Risk for Innovative SMEs: the Role of Innovation Measures," Journal of Financial Services Research, Springer, Springer, vol. 44(1), pages 111-129, August.
  11. Jarko Fidrmuc & Pavel Ciaian & d'Artis Kancs & Jan Pokrivcak, 2011. "Credit Constraints, Heterogeneous Firms and Loan Defaults," EERI Research Paper Series EERI_RP_2011_17, Economics and Econometrics Research Institute (EERI), Brussels.

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