What Has Been the Impact of the 2008 Crisis on Firms’ Default?

Abstract

The acceleration of the firm failure rate in France between 2008 and 2010 was preceded by a surge in the number of firms’ creations in 2003-2004.

Therefore, identifying the impact of the 2008 crisis requires to distinguish, among the failures occurring over the period, those resulting from the crisis from hose mechanically stemming from firm demography, as we know that many firms disappear during their first years of existence.

Our study was conducted using the universe of firms created between January 1, 2000 and December 31, 2007.

This sample is extracted from the database managed by the Companies Direction at Banque de France. The lack of complete information on firms created before 2000 led us to restrict the sample to newly created firms, but the period under study is long enough to encompass the increase in the number of firm creation in 2003-2004. The originality of this study lies both in the sample size and in the richness of the data used.

Our statistical analysis focuses on the period between the date of the firm creation and of its first failure. The impact of the crisis is estimated using a flexible duration model, stratified according to the date of creation. The model takes into account the effects of the company age at the failure date, its industry, its size and the sequence of dates associated with its payment incidents on trade bills.

We examine more specifically the failure rates in four industries: retail trade, transport, manufacturing and construction. The proportion of failures due to the crisis varies greatly across these four sectors. On average, the impact of the 2008 crisis has been of 27% in retail trade, 35% in transports, 43% in manufacturing and 46% in construction. Younger firms, namely those created in 2006 and 2007, were the most affected by the crisis.

Keywords: firms’ bankruptcy, economic crisis, survival, duration model

JEL Classification: G33, C41, D22