Estimating financial distress likelihood

By Julio Pindado, Luís Rodrigues, C. Torre. 2008

242 citations recorded by the source corpus.

This study develops an ex-ante model for estimating financial distress likelihood (FDL), and contributes to the literature by presenting a financially-based definition of distress that is independent of its legal consequences, a theoretically supported model for the FDL, and an appropriate methodology that uses panel data to eliminate the unobservable heterogeneity. The model is then estimated cross-sectionally to obtain an indicator of the likelihood of financial distress that incorporates the specificity of each company. In doing so, this study provides a well-specified model that is stable in terms of magnitude, sign and significance of the coefficients and, more importantly, that yields a measure of the FDL that is more robust to time and the international context than the estimates of FDL that are based on seminal models. This measure could be appropriate for use in future research that deals with FDL, such as capital structure and the prevention of financial distress.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/2546d30bfd366de2bf8184d1e006c882cbd0693e

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Citations in the corpus

• European trade credit use and SME survival (2018, unknown): “Following both Pindado et al. (2008) and Arellano and Honoré (2001), the choice of using probit or logit models depend on assumptions regarding the distribution of the error term, therefore estimating both is advised.”
• Corporate governance effect on financial distress likelihood: Evidence from Spain (2016, background): “Sobre la base del estudio de Pindado et al. (2008), se ha usado un concepto amplio de fracaso empresarial.”