Estimating the Probability of Financial Distress: International Evidence

34 Pages Posted: 13 Jan 2004

See all articles by Julio Pindado

Julio Pindado

University of Salamanca - Administration and Business Economics

Luis Fernandes Rodrigues

Escola Superior de Tecnologia de Viseu

Chabela de la Torre

University of Salamanca - Administration and Business Economics

Date Written: January 6, 2006

Abstract

This study focuses on developing a new approach to estimating the ex-ante probability of financial distress by means of a model that could be applied to different economic and legal contexts. Our approach first consists of testing for the specification of the proposed model by using panel data methodology to eliminate the unobservable heterogeneity. Second, the model is cross-sectionally estimated to obtain an indicator of the probability of financial distress that incorporates the specificity of each company. We find that such a probability is accurately explained by a smaller number of theoretically underpinned factors than has been generally assumed.

Keywords: Financial insolvency, probability of financial distress, logit analysis

JEL Classification: G33

Suggested Citation

Pindado, Julio and Fernandes Rodrigues, Luis and de la Torre, Chabela, Estimating the Probability of Financial Distress: International Evidence (January 6, 2006). Available at SSRN: https://ssrn.com/abstract=485182 or http://dx.doi.org/10.2139/ssrn.485182

Julio Pindado (Contact Author)

University of Salamanca - Administration and Business Economics ( email )

Campus Miguel de Unamuno
Salamanca, ES-37007
Spain
+34 923 294640 (Phone)
+34 923 294715 (Fax)

Luis Fernandes Rodrigues

Escola Superior de Tecnologia de Viseu ( email )

Viseu, 3504-510
Portugal

Chabela De la Torre

University of Salamanca - Administration and Business Economics ( email )

Campus Miguel de Unamuno
Salamanca, ES-37007
Spain

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