An estimation of the default probabilities of Spanish non-financial corporations and their application to evaluate public policies

Roberto Blanco, Elena Fernández, Miguel Garcia-Posada and Sergio Mayordomo
Additional contact information
Elena Fernández: Banco de España

No 2319, Occasional Papers from Banco de España

Abstract: We model the one-year ahead probability for default of Spanish non-financial corporations using data for the period 1996-2019. While most previous literature considers that a firm is in default if it files for bankruptcy, we define default as having non-performing loans during at least three months of a given year. This broader definition allows us to predict firms’ financial distress at an earlier stage that cannot generally be observed by researchers, before their financial conditions become too severe and they have to file for bankruptcy or engage in private workouts with their creditors. We estimate, by means of logistic regressions, both a general model that uses all the firms in the sample and six models for different size-sector combinations. The selected explanatory variables are five accounting ratios, which summarise firms’ creditworthiness, and the growth rate of aggregate credit to non-financial corporations, to take into account the role of credit availability in mitigating the risk of default. Finally, we carry out two applications of our prediction models: we construct credit rating transition matrices and evaluate a programme implemented by the Spanish government to provide direct aid to firms severely affected by the COVID-19 crisis.

Keywords: default; financial distress; non-performing loans; logistic regression (search for similar items in EconPapers)
JEL-codes: G21 G30 G33 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2023-09
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-rmg
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.bde.es/f/webbe/SES/Secciones/Publicaci ... 23/Files/do2319e.pdf First version, September 2023 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bde:opaper:2319

DOI: 10.53479/33512

Access Statistics for this paper

More papers in Occasional Papers from Banco de España Contact information at EDIRC.
Bibliographic data for series maintained by Ángel Rodríguez. Electronic Dissemination of Information Unit. Research Department. Banco de España ().