Examining the Links Between Firm Performance and Insolvency

Dylan Hogg and Hossein Jebeli

No 2025-10, Discussion Papers from Bank of Canada

Abstract: Assessing insolvency dynamics is essential for evaluating the financial health of non-financial corporations and mitigating macroeconomic and financial stability risks. This study leverages a newly created Statistics Canada dataset linking insolvency records with firm-level financial data to develop a robust framework for monitoring insolvency risk. We employ two complementary approaches: a univariate threshold method that establishes critical financial ratio benchmarks and a multivariate econometric model that accounts for interactions among financial indicators. These methods produce debt-at-risk measures that enhance risk assessment by combining simplicity with analytical depth. Finally, we apply these metrics to timely firm-level data, enabling continual monitoring of financial vulnerabilities.

Keywords: Credit and credit aggregates; Econometric and statistical methods; Financial stability; Firm dynamics (search for similar items in EconPapers)
JEL-codes: D22 G33 L20 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2025-07
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