Owner liability and financial reporting information as predictors of firm default in bank loans

We examine the effects of owner liability and non-accounting and financial accounting information on the probability of default as defined in Basel II in bank loan contracted by non listed firms. We model default as a function of owner liability and accounting and non-accounting information of non-l...

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Bibliographic Details
Published in:Review of accounting studies 2014, Vol.19 (2), p.769-804
Main Authors: Bhimani, Alnoor, Gulamhussen, Mohamed Azzim, da Rocha Lopes, Samuel
Format: Article
Language:English
Subjects:
Accounting
Accounting/Auditing
Banking industry
Bankruptcy
Business and Management
Central banks
Commercial law
Corporate Finance
Credit scoring
Default
Liability
Loans
Probability
Public Finance
Studies
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Summary:We examine the effects of owner liability and non-accounting and financial accounting information on the probability of default as defined in Basel II in bank loan contracted by non listed firms. We model default as a function of owner liability and accounting and non-accounting information of non-listed firms, drawing on 43,117 annual accounts of 16,029 firms over a 7-year period. Our estimations based on mixed logistic regressions with random parameters show that the predicted default probability of full-liability firms is 0.72 times that of limited liability firms. The likelihood ratio test for omitted variables confirms the additional predictive ability of liability status over and above other non-accounting and financial accounting information. A Heckman self-selection model does not indicate sampling bias. The particular definition of default used in the study enables the findings to be generalizable across other institutional contexts.
ISSN:1380-6653
1573-7136
DOI:10.1007/s11142-013-9269-0