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

Bhimani, Alnoor, Gulamhussen, Mohamed Azzim and Rocha Lopes, Samuel (2014) Owner liability and financial reporting information as predictors of firm default in bank loans. Review of Accounting Studies, Online . pp. 1-34. ISSN 1380-6653 (In Press)

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Abstract

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.

Item Type: Article
Official URL: http://link.springer.com/journal/11142
Additional Information: © 2014 Springer, Part of Springer Science+Business Media
Library of Congress subject classification: H Social Sciences > HF Commerce > HF5601 Accounting
H Social Sciences > HG Finance
Sets: Departments > Accounting
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 22 Jan 2014 12:14
URL: http://eprints.lse.ac.uk/55396/

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