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Determinants of firm sustainability in Estonia

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  • Kadri Männasoo

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    Abstract

    This paper examines the determinants of firm sustainability in Estonia using discrete-time survival analysis with a complementary log-log hazard function. A firm is defined as sustainable if it meets the minimum capital requirement set by the law, and if it does not then it is described as being \"distressed\". The definition of \"in default\" stipulates that not only must the firm be short of the required capital, but it should also have exited or dropped out altogether. This study confirms the stylized fact that firms face higher risk during their start-up period. Firm distress and default hazard decrease over time, the latter however, non-monotonically being lagged relative to distress. At the industry level, manufacturing firms demonstrate a higher degree of robustness compared to trade and services companies. Most importantly, however, firm sustainability positively depends on efficiency, good stable asset return, low leverage and a large assets base

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    File URL: http://www.eestipank.info/pub/en/dokumendid/publikatsioonid/seeriad/uuringud/_2007/_4_2007/_wp_407.pdf
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    Bibliographic Info

    Paper provided by Bank of Estonia in its series Bank of Estonia Working Papers with number 2007-04.

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    Length: 30 pg.
    Date of creation: 08 Mar 2007
    Date of revision: 08 Mar 2007
    Handle: RePEc:eea:boewps:wp2007-04

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    Postal: Estonia bld. 13, 15095 Tallinn, ESTONIA
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    Web page: http://www.bankofestonia.info
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    Postal: Estonia bld. 13, 15095 Tallinn, ESTONIA
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    Related research

    Keywords: firm default; survival analysis;

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    References

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    1. Karin Joeveer, 2006. "Sources of Capital Structure: Evidence from Transition Countries," CERGE-EI Working Papers wp306, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
    2. Mario Cleves & William W. Gould & Roberto G. Gutierrez & Yulia Marchenko, 2010. "An Introduction to Survival Analysis Using Stata," Stata Press books, StataCorp LP, edition 3, number saus3, July.
    3. Shumway, Tyler, 2001. "Forecasting Bankruptcy More Accurately: A Simple Hazard Model," The Journal of Business, University of Chicago Press, vol. 74(1), pages 101-24, January.
    4. Melvyn Weeks & Mark R. Stone, 2001. "Systemic Financial Crises, Balance Sheets, and Model Uncertainity," IMF Working Papers 01/162, International Monetary Fund.
    5. Serguei Kaniovski & Michael Peneder, 2008. "Determinants of firm survival: a duration analysis using the generalized gamma distribution," Empirica, Springer, vol. 35(1), pages 41-58, March.
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    Cited by:
    1. Aaro Hazak & Kadri Männasoo, 2007. "Indicators of corporate default : an EU based empirical study," Bank of Estonia Working Papers 2007-10, Bank of Estonia, revised 04 Sep 2007.

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