Drivers of corporate bankruptcy and default : study concerning Portuguese Companies

Abstract

My purpose with this dissertation is to investigate the relevance of financial and economic variables as predictors of corporate bankruptcy (default) in Portugal. Understanding the underlying issues behind corporate distress and failure is crucial for several areas particularly: granting (or not) a bank loan, managing credit risk and pricing debt. The present financial and economic crisis stimulated a growing interest on matters related to corporate default, ratings and scoring models. In this dissertation, I apply, to a sample of medium-large Portuguese companies, updated statistical models for identifying the fundamental variables that lead to bankruptcy (and default), and if they are mainly idiosyncratic and / or systematic, affecting simultaneously all firms. I also fit hazard model for studying hazard rates and survival-time, trying to disclose which variables can shield firms from a hazard event, in this case, bankruptcy. The sample was provided by COFACE, a known credit scoring company and included full annual financial statements, from years 2006 to 2011, adding additional requested information, namely, about bankruptcies and legal actions against firms due to payment default. My findings support the conclusion that some financial and economic variables do influence bankruptcy and default probability together with survival-time, which is perfectly anticipated by corporate finance analysis theory and practice. Nevertheless, I reached some conclusions that contradict others from similar studies.