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Financial and economic determinants of firm default

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  • Giulio Bottazzi
  • Marco Grazzi
  • Angelo Secchi
  • Federico Tamagni

Abstract

This paper investigates the relevance of financial and economic variables as determinants of firm defaults. Our analysis is not limited to publicly traded companies but extends to a large sample of limited liability firms. We consider size, growth, profitability and productivity together with a standard set of financial indicators. Non parametric tests allow to asses to what extent defaulting firms differ from the non-defaulting group. Bootstrap probit regressions confirm that economic variables play both a long and short term effect. Our findings are robust with respect to the inclusion of Distance to Deafult and risk ratings among the regressors.

Suggested Citation

  • Giulio Bottazzi & Marco Grazzi & Angelo Secchi & Federico Tamagni, 2009. "Financial and economic determinants of firm default," LEM Papers Series 2009/06, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  • Handle: RePEc:ssa:lemwps:2009/06
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    More about this item

    Keywords

    firm default; financial indicators; selection and growth dynamics; kernel densities; stochastic equality; bootstrap probit regressions; distance to default;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • D20 - Microeconomics - - Production and Organizations - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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