Default Rates in the Loan Market for SMEs

Fidrmuc, Jarko and Hainz, Christa and Malesich, Anton (2007): Default Rates in the Loan Market for SMEs. Evidence from Slovakia. Discussion Papers in Economics 2007-1

Abstract

Banks entering an emerging market face a lot of uncertainty about the risks involved in lending. We use a unique unbalanced panel of nearly 700 short-term loans made to SMEs in Slovakia between January 2000 and June 2005. Of the loans granted, on average 6.0 per cent of the firms defaulted. Several probit models and panel probit models show that liquidity and profitability factors are important determinants of SMEs defaults, while debt factors are less robust. However, we find that above average indebtedness significantly increases the probability of default. Moreover, the legal form that determines liability has important incentive effects.

• Item Type: Paper (Discussion Paper)
• Keywords: SME, Credit, Loan Default, Mortality Rates, Incentives, Probit, Panel Data
• Collections: Economics; Economics > Discussion Papers in Economics; Economics > Discussion Papers in Economics > Industrial Organization; Economics > Discussion Papers in Economics > Institutional Economics; Economics > Discussion Papers in Economics > Transition Economics
• Subjects: 300 Social sciences > 300 Social sciences, sociology and anthropology; 300 Social sciences > 330 Economics
• JEL Classification: G33, G21, C25
• Language: English