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Examining the Links Between Firm Performance and Insolvency

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  • Dylan Hogg
  • Hossein Jebeli

Abstract

Assessing insolvency dynamics is essential for evaluating the financial health of non-financial corporations and mitigating macroeconomic and financial stability risks. This study leverages a newly created Statistics Canada dataset linking insolvency records with firm-level financial data to develop a robust framework for monitoring insolvency risk. We employ two complementary approaches: a univariate threshold method that establishes critical financial ratio benchmarks and a multivariate econometric model that accounts for interactions among financial indicators. These methods produce debt-at-risk measures that enhance risk assessment by combining simplicity with analytical depth. Finally, we apply these metrics to timely firm-level data, enabling continual monitoring of financial vulnerabilities.

Suggested Citation

  • Dylan Hogg & Hossein Jebeli, 2025. "Examining the Links Between Firm Performance and Insolvency," Discussion Papers 2025-10, Bank of Canada.
    • Handle: RePEc:bca:bocadp:25-10
    DOI: 10.34989/sdp-2025-10
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    References listed on IDEAS

    as
    1. Philip Bunn & Victoria Redwood, 2003. "Company accounts based modelling of business failures and the implications for financial stability," Bank of England working papers 210, Bank of England.
    2. Scott, James, 1981. "The probability of bankruptcy: A comparison of empirical predictions and theoretical models," Journal of Banking & Finance, Elsevier, vol. 5(3), pages 317-344, September.
    3. Ohlson, Ja, 1980. "Financial Ratios And The Probabilistic Prediction Of Bankruptcy," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 18(1), pages 109-131.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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