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Determinants of corporate default: a BMA approach


  • Carlos González-Aguado


  • Enrique Moral-Benito

    () (Banco de España)


Model uncertainty hampers consensus on the main determinants of corporate default. We employ Bayesian model averaging (BMA) techniques in order to shed light on this issue. Empirical findings suggest that the most robust determinants of corporate default are firm-specific variables such as the ratio of working capital to total assets, the ratio of retained earnings to total assets, the ratio of total liabilities to total assets and the standard deviation of the firm’s stock return. In contrast, aggregate variables do not seem to play a relevant role once firm-specific characteristics (observable and unobservable) are taken into consideration

Suggested Citation

  • Carlos González-Aguado & Enrique Moral-Benito, 2012. "Determinants of corporate default: a BMA approach," Working Papers 1221, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:1221

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    References listed on IDEAS

    1. Winford H. Masanjala & Chris Papageorgiou, 2008. "Rough and lonely road to prosperity: a reexamination of the sources of growth in Africa using Bayesian model averaging," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(5), pages 671-682.
    2. Enrique Moral-Benito, 2012. "Determinants of Economic Growth: A Bayesian Panel Data Approach," The Review of Economics and Statistics, MIT Press, vol. 94(2), pages 566-579, May.
    3. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, January.
    4. Xavier Sala-I-Martin & Gernot Doppelhofer & Ronald I. Miller, 2004. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," American Economic Review, American Economic Association, vol. 94(4), pages 813-835, September.
    5. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    6. repec:bla:joares:v:18:y:1980:i:1:p:109-131 is not listed on IDEAS
    7. repec:bla:joares:v:22:y:1984:i::p:59-82 is not listed on IDEAS
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    Cited by:

    1. Rockey, James & Temple, Jonathan, 2016. "Growth econometrics for agnostics and true believers," European Economic Review, Elsevier, vol. 81(C), pages 86-102.
    2. Narayan Bulusu & Pierre Guérin, 2018. "What Drives Interbank Loans? Evidence from Canada," Staff Working Papers 18-5, Bank of Canada.

    More about this item


    Default probabilities; Bayesian model averaging; Credit Risk;

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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