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The Bankruptcy Prediction Power of New Entrants

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  • Nicolae Stef
  • Sami Ben Jabeur

Abstract

This study aims to determine if the number of new entrants provides a useful tool for forecasting the probability of a firm’s liquidation. We assess how the formation of new firms in a firm’s geographical location influences the likelihood of liquidation. Using a sample of 825 non-listed French industrial firms located in small cities, our estimates show that an increase in the number of new industrial firms in a firm’s location has a positive and significant impact on the probability of a firm being liquidated. The emergence of new firms seems to have stronger power in predicting bankruptcy than other financial variables such as leverage or the rate of exports.

Suggested Citation

  • Nicolae Stef & Sami Ben Jabeur, 2018. "The Bankruptcy Prediction Power of New Entrants," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 25(3), pages 421-440, September.
    • Handle: RePEc:taf:ijecbs:v:25:y:2018:i:3:p:421-440
    DOI: 10.1080/13571516.2018.1455389
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    Cited by:

    1. Stef, Nicolae & Zenou, Emmanuel, 2021. "Management-to-staff ratio and a firm's exit," Journal of Business Research, Elsevier, vol. 125(C), pages 252-260.
    2. Nguyen, Minh-Hoang & Huyen, Nguyen Thanh Thanh & Pham, Thanh-Hang & Yen, Nguyen Thi Quynh & Vuong, Quan-Hoang, 2020. "On the 50-year research landscape of entrepreneurial finance: A sign of Western ideological homogeneity?," OSF Preprints qf62s, Center for Open Science.
    3. Sami Ben Jabeur & Nicolae Stef & Pedro Carmona, 2023. "Bankruptcy Prediction using the XGBoost Algorithm and Variable Importance Feature Engineering," Computational Economics, Springer;Society for Computational Economics, vol. 61(2), pages 715-741, February.
    4. Nicolae Stef, 2021. "Institutions and corporate financial distress in Central and Eastern Europe," European Journal of Law and Economics, Springer, vol. 52(1), pages 57-87, August.
    5. Stef, Nicolae, 2022. "How does legal design affect the initiation of a firm's bankruptcy?," Economic Modelling, Elsevier, vol. 114(C).
    6. Sami Ben Jabeur & Rabi Belhaj Hassine & Salma Mefteh‐Wali, 2021. "Firm financial performance during the financial crisis: A French case study," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2800-2812, April.
    7. Stef, Nicolae & Bissieux, Jean-Joachim, 2022. "Resolution of corporate insolvency during COVID-19 pandemic. Evidence from France," International Review of Law and Economics, Elsevier, vol. 70(C).
    8. ben Jabeur, Sami & Mefteh-Wali, Salma & Carmona, Pedro, 2021. "The impact of institutional and macroeconomic conditions on aggregate business bankruptcy," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 108-119.

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