Default Rates in the Loan Market for SMEs

Fidrmuc, Jarko; Hainz, Christa and Malesich, Anton (January 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
• Keywords: SME, Credit, Loan Default, Mortality Rates, Incentives, Probit, Panel Data
• Faculties: Economics; Economics > Chairs > Seminar for Comparative Economics
• Subjects: 300 Social sciences > 300 Social sciences, sociology and anthropology; 300 Social sciences > 330 Economics
• JEL Classification: G33, G21, C25
• Language: English