Imperial College London
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DrLaraCathcart

Business School

Associate Professor of Finance
 
 
 
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Contact

 

+44 (0)20 7594 9126l.cathcart

 
 
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Location

 

3.0953 Prince's GateSouth Kensington Campus

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Summary

 

Publications

Citation

BibTex format

@article{Cathcart:2020:10.1016/j.jcorpfin.2019.101541,
author = {Cathcart, L and Dufour, A and Rossi, L and Varotto, S},
doi = {10.1016/j.jcorpfin.2019.101541},
journal = {Journal of Corporate Finance},
pages = {1--36},
title = {The differential impact of leverage on the default risk of small and large firms},
url = {http://dx.doi.org/10.1016/j.jcorpfin.2019.101541},
volume = {60},
year = {2020}
}
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RIS format (EndNote, RefMan)

TY  - JOUR
AB  - We analyse a sample of 6 million firm-year observations of large corporations and small and medium sized enterprises (SMEs) spanning 6 European countries from 2005 to 2015, to determine the impact of leverage and different sources of funding on default risk. We find that financial leverage has a greater impact on the probability of default of SMEs than of large corporations. The difference in default probability between the top and bottom leverage quartiles is 1.24% for large firms and 2.87% for SMEs. This difference may be explained by the greater exposure of SMEs to short-term debt and their consequently higher refinancing risk. Indeed, we find that SMEs that recover from the state of insolvency may have similar leverage to defaulted SMEs; however their liability structure is significantly altered towards long-term debt and away from short-term debt. Our findings have important implications not only for bank regulators and policy-makers but also for credit risk modelling.
AU  - Cathcart,L
AU  - Dufour,A
AU  - Rossi,L
AU  - Varotto,S
DO  - 10.1016/j.jcorpfin.2019.101541
EP  - 36
PY  - 2020///
SN  - 0929-1199
SP  - 1
TI  - The differential impact of leverage on the default risk of small and large firms
T2  - Journal of Corporate Finance
UR  - http://dx.doi.org/10.1016/j.jcorpfin.2019.101541
UR  - https://www.sciencedirect.com/science/article/pii/S0929119918305443?via%3Dihub
UR  - http://hdl.handle.net/10044/1/74420
VL  - 60
ER  -
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