Determinants of Corporate Default: A BMA Approach

22 Pages Posted: 13 Jun 2012

See all articles by Carlos González-Aguado

Carlos González-Aguado

Centre for Monetary and Financial Studies (CEMFI)

Enrique Moral-Benito

Banco de España; Universidad Carlos III de Madrid

Date Written: June 13, 2012

Abstract

Model uncertainty hampers consensus on the main determinants of corporate default. We employ Bayesian model averaging (BMA) techniques in order to shed light on this issue. Empirical findings suggest that the most robust determinants of corporate default are firm-specific variables such as the ratio of working capital to total assets, the ratio of retained earnings to total assets, the ratio of total liabilities to total assets and the standard deviation of the firm’s stock return. In contrast, aggregate variables do not seem to play a relevant role once firm-specific characteristics (observable and unobservable) are taken into consideration.

Keywords: default probabilities, Bayesian model averaging, credit risk

JEL Classification: G33, C1

Suggested Citation

González-Aguado, Carlos and Moral-Benito, Enrique, Determinants of Corporate Default: A BMA Approach (June 13, 2012). Banco de Espana Working Paper No. 1221. Available at SSRN: https://ssrn.com/abstract=2083499 or http://dx.doi.org/10.2139/ssrn.2083499

Carlos González-Aguado (Contact Author)

Centre for Monetary and Financial Studies (CEMFI) ( email )

Casado del Alisal 5
28014 Madrid
Spain

Enrique Moral-Benito

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

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