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Small, alone and poor: a merciless portrait of insolvent French firms, 2007-2010

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  • Nadine Levratto
  • Luc Tessier
  • Messaoud Zouikri

Abstract

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.
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Suggested Citation

  • Nadine Levratto & Luc Tessier & Messaoud Zouikri, 2012. "Small, alone and poor: a merciless portrait of insolvent French firms, 2007-2010," Erudite Working Paper 2012-05, Erudite.
    • Handle: RePEc:eru:erudwp:wp12-05
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    Cited by:

    1. Stéphane Esquerré, 2019. "How do judges judge? Evidence of local effect on French bankruptcy judgments," Working Papers hal-02291688, HAL.

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    More about this item

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • K20 - Law and Economics - - Regulation and Business Law - - - General

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