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Moving in and out of financial distress: evidence for newly founded service sector firms


  • Kaiser, Ulrich


The determinants of transitions between different states of financial distress are analyzed using two versions of Markov chain models: a multinomial logit model without random effects and a multinomial logit model capturing such unobservable factors. The empirical analysis is based on a panel data set containing information on 15,538 East German firms founded between 1994 and 1999. The estimation results indicate that the effect of limited liability depends upon firms' starting state, the existence of corporate shareholders improves firms' financial performance, multiple credit relationships have negative effects and product diversification as well as positive macroeconomic conditions improve firms' financial performance.

Suggested Citation

  • Kaiser, Ulrich, 2001. "Moving in and out of financial distress: evidence for newly founded service sector firms," ZEW Discussion Papers 01-09, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  • Handle: RePEc:zbw:zewdip:5364

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    References listed on IDEAS

    1. Kaiser, Ulrich & Voß, Katrin, 1999. "Do Business-related Services Really Lag Behind Manufacturing Industries in the Business Cycle? Empirical Evidence on the Lead/Lag Relationship Between Business-related Services and Manufacturing Indus," ZEW Discussion Papers 99-34, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    2. Kaiser, Ulrich & Kreuter, Markus & Niggemann, Hiltrud, 2000. "The ZEW - Creditreform business survey in the business-related services sector : sampling frame, stratification, expansion and results," ZEW Discussion Papers 00-22, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    3. Elston, Julie Ann, 1996. "Investment, Liquidity Constraints and Bank Relationships: Evidence from German Manufacturing Firms," CEPR Discussion Papers 1329, C.E.P.R. Discussion Papers.
    4. Avery, Robert B. & Bostic, Raphael W. & Calem, Paul S. & Canner, Glenn B., 1999. "Consolidation and bank branching patterns," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 497-532, February.
    5. Susanne Prantl, 2000. "Post-Entry Selection Among Newly Founded Firms in East and West Germany after Unification: A Competing Risk Model with Forced Bankruptcy Liquidations and Voluntary Liquidations," Econometric Society World Congress 2000 Contributed Papers 1602, Econometric Society.
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    Cited by:

    1. Balcaen S. & Ooghe H., 2004. "Alternative methodologies in studies on business failure: do they produce better results than the classic statistical methods?," Vlerick Leuven Gent Management School Working Paper Series 2004-16, Vlerick Leuven Gent Management School.
    2. Pasaribu, Rowland Bismark Fernando, 2008. "Penggunaan Binary Logit untuk Prediksi Financial Distress Perusahaan Yang Tercatat Di Bursa Efek Jakarta
      [Financial Distress Prediction In Indonesian Stock Exchange]
      ," MPRA Paper 36980, University Library of Munich, Germany.
    3. Dekker, Ronald, 2007. "Non-standard employment and mobility in the Netherlands," MPRA Paper 7385, University Library of Munich, Germany.
    4. Ewert, Ralf & Szczesny, Andrea, 2001. "Countdown for the New Basle Capital Accord: Are German banks ready for the internal ratings-based approach?," CFS Working Paper Series 2001/05, Center for Financial Studies (CFS).

    More about this item


    financial distress; Markov chains; multinomial logit model; simulated maximum;

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models


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