Determinants of corporate default risk in China: The role of financial constraints
Ding Liu () and
Economic Modelling, 2020, vol. 92, issue C, 87-98
Corporate default risk can affect financial stability and the macroeconomy. However, the determinants of corporate default risk in China are not well defined in the literature. We address this issue by using a rich credit event dataset of 981 Chinese listed firms over the period 1998–2013 and study the factors that affect default risk. We demonstrate that leverage, liquidity, firm size are the key firm-specific factors in determining default risk in China, along with macroeconomic factors like interest rate and stock return. Moreover, ‘Too big to fail’ only applies to non-SOEs, as default risk of SOEs is not affected by the firm size. We further find that high liquidity fails to reduce firms default risk, because small-sized firms which are financially constrained have limited cash to prevent financial distress, whereas large firms with greater cash holdings are able to mitigate their default risk as they are unconstrained.
Keywords: Chinas publicly listed firms; Default risk; Financial constraints (search for similar items in EconPapers)
JEL-codes: C58 G33 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:92:y:2020:i:c:p:87-98
Access Statistics for this article
Economic Modelling is currently edited by S. Hall and P. Pauly
More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Nithya Sathishkumar ().