Financial and Economic Determinants of Firm Default
by Giulio Bottazzi of Scuola Superiore Sant'Anna,
October 19, 2009
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 Default and risk ratings among the regressors.
Keywords: firm default, financial indicators, selection and growth dynamics, kernel densities, stochastic equality, bootstrap probit regressions, Distance to Default.