Estimating financial distress with a dynamic model: Evidence from family owned enterprises in a small open economy
Employing earnings shortfall as a financial distress indicator, we formulate a dynamic nonlinear model, implementing Wooldridge's conditional maximum likelihood estimator and accounting for potentially endogenous covariates. Likewise, we not only achieve a significant improvement in consistency and classification accuracy over static approaches, but we also manage to understand better the evolution of the financial distress process. In our sample of Greek listed firms the higher the positive performance and the lower the leverage at the initial period the greater the chance that a company enters financial distress further down the road, possibly due to manager-owner overconfidence and debt-imposed discipline by company's creditors.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
- Perfect, Steven B. & Wiles, Kenneth W., 1994. "Alternative constructions of Tobin's q: An empirical comparison," Journal of Empirical Finance, Elsevier, vol. 1(3-4), pages 313-341, July.
- Wruck, Karen Hopper, 1990. "Financial distress, reorganization, and organizational efficiency," Journal of Financial Economics, Elsevier, vol. 27(2), pages 419-444, October.
- Grice, John Stephen & Dugan, Michael T, 2001. " The Limitations of Bankruptcy Prediction Models: Some Cautions for the Researcher," Review of Quantitative Finance and Accounting, Springer, vol. 17(2), pages 151-66, September.
- Campbell, John Y. & Hilscher, Jens & Szilagyi, Jan, 2005.
"In search of distress risk,"
Discussion Paper Series 1: Economic Studies
2005,27, Deutsche Bundesbank, Research Centre.
- Szilagyi, Jan & Hilscher, Jens & Campbell, John, 2008. "In Search of Distress Risk," Scholarly Articles 3199070, Harvard University Department of Economics.
- John Y. Campbell & Jens Hilscher & Jan Szilagyi, 2006. "In Search of Distress Risk," NBER Working Papers 12362, National Bureau of Economic Research, Inc.
- John Y. Campbell & Jens Hilscher & Jan Szilagyi, 2005. "In Searach of Distress Risk," Harvard Institute of Economic Research Working Papers 2081, Harvard - Institute of Economic Research.
- Deesomsak, Rataporn & Paudyal, Krishna & Pescetto, Gioia, 2004. "The determinants of capital structure: evidence from the Asia Pacific region," Journal of Multinational Financial Management, Elsevier, vol. 14(4-5), pages 387-405.
- Matthias Kahl, 2002. "Economic Distress, Financial Distress, and Dynamic Liquidation," Journal of Finance, American Finance Association, vol. 57(1), pages 135-168, 02.
- Paul Asquith & Robert Gertner & David Scharfstein, 1994. "Anatomy of Financial Distress: An Examination of Junk-Bond Issuers," The Quarterly Journal of Economics, Oxford University Press, vol. 109(3), pages 625-658.
- Jeffrey M Wooldridge, 2002.
"Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity,"
CeMMAP working papers
CWP18/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
- Jeffrey M. Wooldridge, 2005. "Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(1), pages 39-54.
- Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 1998.
"Corporate Ownership Around the World,"
NBER Working Papers
6625, National Bureau of Economic Research, Inc.
- Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 1998. "Corporate Ownership Around the World," Harvard Institute of Economic Research Working Papers 1840, Harvard - Institute of Economic Research.
- Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
- Maria Brouwer, 2006. "Reorganization in US and European Bankruptcy law," European Journal of Law and Economics, Springer, vol. 22(1), pages 5-20, July.
- Akay, Alpaslan, 2009. "The Wooldridge Method for the Initial Values Problem Is Simple: What About Performance?," IZA Discussion Papers 3943, Institute for the Study of Labor (IZA).
- Randall K. Morck & Lloyd Steier, 2005.
"The Global History of Corporate Governance: An Introduction,"
NBER Working Papers
11062, National Bureau of Economic Research, Inc.
- Randall Morck & Lloyd Steier, 2005. "The Global History of Corporate Governance: An Introduction," NBER Chapters, in: A History of Corporate Governance around the World: Family Business Groups to Professional Managers, pages 1-64 National Bureau of Economic Research, Inc.
- Dean R. Hyslop, 1999. "State Dependence, Serial Correlation and Heterogeneity in Intertemporal Labor Force Participation of Married Women," Econometrica, Econometric Society, vol. 67(6), pages 1255-1294, November.
- Jostarndt, Philipp & Sautner, Zacharias, 2008. "Financial distress, corporate control, and management turnover," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2188-2204, October.
- Platt, Harlan D. & Platt, Marjorie B., 2006. "Understanding Differences Between Financial Distress and Bankruptcy," Review of Applied Economics, Review of Applied Economics, vol. 2(2).
- Pindado, Julio & Rodrigues, Luis & de la Torre, Chabela, 2008. "Estimating financial distress likelihood," Journal of Business Research, Elsevier, vol. 61(9), pages 995-1003, September.
- Seifert, Bruce & Gonenc, Halit & Wright, Jim, 2005. "The international evidence on performance and equity ownership by insiders, blockholders, and institutions," Journal of Multinational Financial Management, Elsevier, vol. 15(2), pages 171-191, April.
When requesting a correction, please mention this item's handle: RePEc:eee:mulfin:v:21:y:2011:i:4:p:239-255. See general information about how to correct material in RePEc.
If references are entirely missing, you can add them using this form.