Owner liability and financial reporting information as predictors of firm default in bank loans

Owner liability and financial reporting information as predictors of firm default in bank loans We examine the effects of owner liability and non-accounting and financial accounting information on the probability of default as defined in Basel II in bank loan contracted by non listed firms. We model default as a function of owner liability and accounting and non-accounting information of non-listed firms, drawing on 43,117 annual accounts of 16,029 firms over a 7-year period. Our estimations based on mixed logistic regressions with random parameters show that the predicted default probability of full-liability firms is 0.72 times that of limited liability firms. The likelihood ratio test for omitted variables confirms the additional predictive ability of liability status over and above other non-accounting and financial accounting information. A Heckman self-selection model does not indicate sampling bias. The particular definition of default used in the study enables the findings to be generalizable across other institutional contexts. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Owner liability and financial reporting information as predictors of firm default in bank loans

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Publisher
Springer US
Copyright
Copyright © 2014 by Springer Science+Business Media New York
Subject
Economics / Management Science; Accounting/Auditing; Finance/Investment/Banking; Public Finance & Economics
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1007/s11142-013-9269-0
Publisher site
See Article on Publisher Site

Abstract

We examine the effects of owner liability and non-accounting and financial accounting information on the probability of default as defined in Basel II in bank loan contracted by non listed firms. We model default as a function of owner liability and accounting and non-accounting information of non-listed firms, drawing on 43,117 annual accounts of 16,029 firms over a 7-year period. Our estimations based on mixed logistic regressions with random parameters show that the predicted default probability of full-liability firms is 0.72 times that of limited liability firms. The likelihood ratio test for omitted variables confirms the additional predictive ability of liability status over and above other non-accounting and financial accounting information. A Heckman self-selection model does not indicate sampling bias. The particular definition of default used in the study enables the findings to be generalizable across other institutional contexts.

Journal

Review of Accounting StudiesSpringer Journals

Published: Jan 8, 2014

References

  • Effects of the new Basel capital accord on bank capital requirements for SMEs
    Altman, EI; Sabato, G
  • Do differences in financial reporting attributes impair the predictive ability of financial ratios for bankruptcy?
    Beaver, WH; Correia, M; McNichols, MF
  • Have financial statements become less informative: Evidence from the ability of financial ratios to predict bankruptcy
    Beaver, WH; McNichols, MF; Rhie, J-W
  • Forecasting default with the Merton distance to default model
    Bharath, S; Shumway, T
  • Predicting business failures in Canada
    Boritz, JE; Kennedy, D; Sun, J

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