Evaluation of credit risk based on firm performance |
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Authors: | Maria Psillaki Ioannis E Tsolas Dimitris Margaritis |
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Institution: | 1. University of Nice-Sophia Antipolis, GREDEG-CNRS, 250 rue A. Einstein, 06560 Valbonne, France;2. National Technical University of Athens, School of Applied Mathematics and Physics, 9 Iroon Polytechniou, Zografou Campus, Athens 157 80, Greece;3. Department of Finance, Faculty of Business, AUT, 42 Wakefield St., Auckland 1010, New Zealand |
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Abstract: | This paper investigates whether productive inefficiency measured as the distance from the industry’s ‘best practice’ frontier is an important ex-ante predictor of business failure. We use samples of French textiles, wood and paper products, computers and R&D companies to obtain efficiency estimates for individual firms in each industry. These efficiency measures are derived from a directional technology distance function constructed empirically using non-parametric data envelopment analysis (DEA) methods. Estimating binary and ordered logit regression models we find that productive efficiency has significant explanatory power in predicting the likelihood of default over and above the effect of standard financial indicators. |
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Keywords: | G21 |
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