The Bankruptcy Prediction Power of New Entrants

Nicolae Stef and Sami Ben Jabeur

International Journal of the Economics of Business, 2018, vol. 25, issue 3, 421-440

Abstract: This study aims to determine if the number of new entrants provides a useful tool for forecasting the probability of a firm’s liquidation. We assess how the formation of new firms in a firm’s geographical location influences the likelihood of liquidation. Using a sample of 825 non-listed French industrial firms located in small cities, our estimates show that an increase in the number of new industrial firms in a firm’s location has a positive and significant impact on the probability of a firm being liquidated. The emergence of new firms seems to have stronger power in predicting bankruptcy than other financial variables such as leverage or the rate of exports.

Date: 2018
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DOI: 10.1080/13571516.2018.1455389

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