Default Rates in the Loan Market for SMEs

Feb 3rd, 2012
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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 shortterm 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.

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THE WILLIAM DAVIDSON INSTITUTEAT THE UNIVERSITY OF MICHIGANDefault Rates in the Loan Market for SMEs:Evidence from SlovakiaBy: Jarko Fidrmuc, Christa Hainz and Anton MalesichWilliam Davidson Institute Working Paper Number 854November 2006 Default Rates in the Loan Market for SMEs:Evidence from Slovakia*Jarko FidrmucI,#Christa HainzIIAnton MalesichIIINovember 2006AbstractBanks entering an emerging market face a lot of uncertainty about the risks involved in lending. We use a unique unbalanced panel of nearly 700 shortterm 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.Keywords: SME, Credit, Loan Default, Mortality Rates, Incentives, Probit, Panel Data. JEL Classification:.G33, G21, C25*The authors would like to thank Zuzana Fungacova, Peter Huber, David Kemme,Stefanie Kleimeier, Monika Schnitzer and seminar participants at the University of Munich, the Annual Meeting of Austrian Economic Association in Vienna, and the participants of the Conference on Risk, Regulation and Competition: Banking in Transition Econ

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