Small, alone and poor: a merciless portrait of insolvent French firms, 2007-2010
This empirical paper investigates the path to bankruptcy for a sample of French firms in default, in particular the decision to file a petition for bankruptcy, the arbitrage between rescuing and liquidation and the effective survival. The procedure is depicted as a sequence of three steps in which judges play a crucial role as they decide whether a company is insolvent or not and determine whether an insolvent company deserves to be rescued or, on the contrary, should be liquidated, the market having the last word since the effective success depends on the capability of the firm to recover from the judicial proceedings. We test different hypotheses about the variables influencing each possibility which include i) the role of the market in the firm's health, ii) the influence of financial structures, iii) the importance of corporate governance and iv) the inherent corporate factors of probable survival. Using three linked LOGIT models, our first finding is that the probability to default depends mainly on the market. Secondly the probability to be rescued depends essentially on the financial structure. Finally, the probability for the firm to remain in business in the long term is largely influenced by the market and profitability. Our results also support the idea that governance, size and resources are the main determinants of exit from the market or success of any company.
|Date of creation:||2011|
|Date of revision:|
|Contact details of provider:|| Postal: 200 Avenue de la République, Bât. G - 92001 Nanterre Cedex|
Web page: http://economix.fr
More information through EDIRC
References listed on IDEAS
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.:
- Harlan Platt & Marjorie Platt, 2002. "Predicting corporate financial distress: Reflections on choice-based sample bias," Journal of Economics and Finance, Springer, vol. 26(2), pages 184-199, June.
- Pierre-Cyrille Hautcoeur & Nadine Levratto, 2007.
"Petites et grandes entreprises face à la faillite au XIXème siècle en France : du droit à la pratique,"
PSE Working Papers
- Pierre-Cyrille Hautcoeur & Nadine Levratto, 2008. "Petites et grandes entreprises face à la faillite au XIXème siècle en France : du droit à la pratique," EconomiX Working Papers 2008-7, University of Paris West - Nanterre la Défense, EconomiX.
- Claessens, Stijn & Klapper, Leora F., 2002.
"Bankruptcy around the World: Explanations of its Relative Use,"
CEI Working Paper Series
2002-17, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
- Stijn Claessens & Leora F. Klapper, 2005. "Bankruptcy around the World: Explanations of Its Relative Use," American Law and Economics Review, Oxford University Press, vol. 7(1), pages 253-283.
- Claessens, Stijn & Klapper, Leora F., 2002. "Bankruptcy around the world - explanations of its relative use," Policy Research Working Paper Series 2865, The World Bank.
- Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Peel, M. J. & Peel, D. A., 1988. "A multilogit approach to predicting corporate failure--Some evidence for the UK corporate sector," Omega, Elsevier, vol. 16(4), pages 309-318.
- Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
- Bose, Indranil & Pal, Raktim, 2006. "Predicting the survival or failure of click-and-mortar corporations: A knowledge discovery approach," European Journal of Operational Research, Elsevier, vol. 174(2), pages 959-982, October.
- Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
- Terry J. Ward & Benjamin P. Foster, 1997. "A Note on Selecting a Response Measure for Financial Distress," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(6), pages 869-879.
- Altman, Edward I. & Haldeman, Robert G. & Narayanan, P., 1977. "ZETATM analysis A new model to identify bankruptcy risk of corporations," Journal of Banking & Finance, Elsevier, vol. 1(1), pages 29-54, June.
When requesting a correction, please mention this item's handle: RePEc:drm:wpaper:2011-36. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Valérie Mignon)
If references are entirely missing, you can add them using this form.