Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/89550 
Year of Publication: 
2007
Series/Report no.: 
LEM Working Paper Series No. 2007/15
Publisher: 
Scuola Superiore Sant'Anna, Laboratory of Economics and Management (LEM), Pisa
Abstract: 
The study of firms' default has attracted wide interest among both practitioners and scholars. However, attention has often been limited to a relatively small set of financial variables. In this work, we try to increase the scope of analysis extending the investigation to other possible determinants of default. In particular, we rely on credit ratings to summarize firms' financial conditions, and we address the potential predictive power of a set of economic dimensions size, growth, profitability and productivity which industrial economics suggest to be meaningful determinants of survival. We present novel results based on a large Italian dataset reporting credit ratings for all the firms in the sample. As far as financial conditions and default are concerned, we find that the firms displaying the worst credit ratings are quite turbulent, but also exhibit non-negligible chances to recover. Moreover, the analysis of the distribution of firms' economic performance reveals that profitability stands up as the only relevant economic variable telling apart defaulting firms from surviving ones, at different time distance to default. Finally, probit and logit estimation of default probabilities, testing for the simultaneous effect of economic and financial dimensions, suggest that growth, in addition to credit ratings, significantly affects the likelihood of default, albeit in a positive (and as such unexpected) way in the manufacturing industry.
Subjects: 
Default probability
Credit ratings
Firm growth dynamics
Selection
JEL: 
C14
C25
D20
G30
L11
Document Type: 
Working Paper

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