Owner liability and financial reporting information as predictors of firm default in bank loans
Bhimani, Alnoor Gulamhussen, Azzim da Rocha Lopes, Samuel
Bhimani, Alnoor
Gulamhussen, Azzim
da Rocha Lopes, Samuel
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Publication Type
Journal article with impact factor
Editor
Supervisor
Publication Year
2014
Journal
Review of Accounting Studies
Book
Publication Volume
19
Publication Issue
2
Publication Begin page
769
Publication End page
804
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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.
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Keywords
Accounting & Finance, Financial Services & Insurance