Is Bigger Always Better ? The Effect of Size on Defaults

Giulio Bottazzi and Federico Tamagni

LEM Papers Series from Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy

Abstract: Exploiting a large database of Italian manufacturing firms we investigate the relationships between default rate and firm size. Default events, defined as conditions of actual or likely insolvency, are a signal of deep business troubles. They are unanticipated, costly and dangerous for the firm as well as for the economy, and should be in principle avoided. Our evidence, based on data provided by a large Italian banking group, reveals that the default probability of firms increases with their size. This finding contrasts with typical results on exit events based on business registries data, and suggests to revise the common wisdom that sees the core of the industry as a safe place and its members as most valuable economic assets.

Keywords: firm default and exit; firm size; bootstrap probit regressions. (search for similar items in EconPapers)
JEL-codes: C14 C25 G30 L11 (search for similar items in EconPapers)
Date: 2010-05-01
New Economics Papers: this item is included in nep-ban, nep-bec, nep-rmg and nep-sbm
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Persistent link: https://EconPapers.repec.org/RePEc:ssa:lemwps:2010/07

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