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Default Risk Analysis in Micro, Small and Medium Enterprises: Does Debt Overhang Theory Occur?

Author

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  • Imam Wahyudi

    (Department of Management, Faculty of Economics and Business, University of Indonesia, Depok 16424, West Java, Indonesia)

Abstract

This paper intends to analyse the default risk in micro, small and medium enterprises (MSMEs) and its relation to new debt opportunities, debt overhang theory and growth intention. The results confirm that cash flow, capacity and leverage are the major determinants of firms’ default, while gross margin and efficiency measure are not significant predictors. By analysing the rating transition behaviour, we found that the further the rating migrates, the smaller the probability of transition and that the probability towards default is greater along with the decreased quality rating. By extending the analysis, we found that the debt overhang theory is not applied in relationships between banks and MSMEs.

Suggested Citation

  • Imam Wahyudi, 2014. "Default Risk Analysis in Micro, Small and Medium Enterprises: Does Debt Overhang Theory Occur?," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 10(1), pages 95-131.
    • Handle: RePEc:usm:journl:aamjaf01001_95-131
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    Citations

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    Cited by:

    1. Amarjit Gill & Harvinder S. Mand & Afshin Amiraslany & Neil Mathur, 2017. "Socially Responsible Investment, Internal Financing Sources and Access to Bank Financing: Evidence from Indian Survey Data," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 13(2), pages 109-133.
    2. Yang Fuming & WeiLun Huang & Liu Xiaojing, 2022. "Micro- and small-sized enterprises’ willingness to borrow via internet financial services during coronavirus disease 2019," International Entrepreneurship and Management Journal, Springer, vol. 18(1), pages 191-216, March.
    3. R. P. M. (René-Pascal) van den Boom, 2022. "Do Dutch SMEs Manage Financial Risk Rationally? Implications from an Empirical Study," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 14(7), pages 1-44, July.

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