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Article
Indicators of Corporate Default – EU-Based Empirical Study
Aaro Hazak, Kadri Mannasoo
ABSTRACT. The present article contributes to the research on the indicators that provide a warning of company failure by employing micro and macro variables within a framework of survival analysis using a sample of 0.4 million companies from the European Union (EU). The sensitivity of the results is checked using two complementary event definitions – bankruptcy and negative equity. Our results imply that the baseline hazard of a default is a U-shaped function of the time the company has survived. High leverage and a low return on assets appear to be strong predictors of failure. Macroeconomic variables give mixed evidence for old and new member states as well as for the two default definitions.
KEYWORDS: corporate default, bankruptcy, survival analysis, the European Union.
JEL classification: G33, C41, 052.