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

Alnoor Bhimani (), Mohamed Azzim Gulamhussen and Samuel Rocha Lopes
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Alnoor Bhimani: London School of Economics and Political Science
Mohamed Azzim Gulamhussen: Instituto Universitário de Lisboa
Samuel Rocha Lopes: European Banking Authority

Review of Accounting Studies, 2014, vol. 19, issue 2, No 8, 769-804

Abstract: 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.

Keywords: Business law; Firm performance; Accounting information; Ownership; Default (search for similar items in EconPapers)
JEL-codes: G32 G39 K22 L25 M41 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/s11142-013-9269-0

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