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The relationship between bankruptcy risk and growth for non-listed firms

Author

Listed:
  • Kjell Bjørn Nordal

    (Norges Bank (Central Bank of Norway))

  • Randi Næs

    (Norwegian Ministry of Trade and Industry)

Abstract

We investigate the relationship between bankruptcy risk and expected future sales growth for Norwegian non-listed firms for the period 1988-2007. We find that firms with high bankruptcy risk also have high expected future growth. Financial ratios characterizing firms with high bankruptcy risk also characterize firms with high future expected growth. Small firms, firms with low levels of equity and retained earnings, firms with low profitability and low levels of sales per unit of capital, have all higher expected future growth rates than other firms. These findings suggest a tradeoff between the upside potential of high growth and the downside risk of bankruptcy.

Suggested Citation

  • Kjell Bjørn Nordal & Randi Næs, 2010. "The relationship between bankruptcy risk and growth for non-listed firms," Working Paper 2010/31, Norges Bank.
    • Handle: RePEc:bno:worpap:2010_31
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    File URL: https://www.norges-bank.no/en/news-events/news-publications/Papers/Working-Papers/2010/WP-201031/
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    References listed on IDEAS

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    More about this item

    Keywords

    Non-listed firms; growth; bankruptcy risk;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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