Financial and economic determinants of firm default

Authors: 
Giulio Botazzi, Marco Grazzi, Angelo Secchi, Federico Tamagni
Work package: 
WP 4
Publication number: 
4.3
Date: 
01 February 2010

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 assess 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 Default and risk ratings among the regressors.

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