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The Role of Default Risk on Firms Performance: Case Study Firms in Europe
University West, School of Business, Economics and IT.
2023 (English)Independent thesis Advanced level (degree of Master (One Year)), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

This thesis aims to analyze the influence of default risk on firms' performance. It seeks to elucidate how default risk affects firms' growth and its undeniable impact on financial reporting. Our research will scrutinize a dataset spanning from 2008 to 2022, with a focus on European firms as a representative sample. The key performance metric under consideration is the return on assets, with explanatory variables encompassing default risk, leverage, credit risk, and firm size. In addition to the distinctive and readily available dataset, our research introduces credit risk as an alternative to default risk, expanding the scope of investigation. Employing risk management strategies and the structural dynamics of return on assets, this study delves into the ramifications of default risk on business performance. We also explore the relationship between efficiency and the likelihood of default through the TOBINQ framework, positing that organizations with higher efficiency are less susceptible to failure.

The empirical findings of this study underscore the detrimental impact of default risk on a firm's performance relative to its peers. This emphasizes the adverse consequences that default risk can impose on business outcomes. Concurrently, it sheds light on opportunities for organizations that monitor misconduct within publicly listed companies. Through the construction of regression models, our analysis reveals that efficiency plays a significant role in predicting the probability of default, complementing the influence of traditional financial indicators. Our empirical research further underscores the precarious nature of relying solely on financial ratios as ex ante predictors of business failure.

Place, publisher, year, edition, pages
2023. , p. 34
Keywords [en]
firms, credit risk, risk, corporate firm, risk management, market share
National Category
Economics
Identifiers
URN: urn:nbn:se:hv:diva-20907Local ID: EXF800OAI: oai:DiVA.org:hv-20907DiVA, id: diva2:1810498
Subject / course
Nationalekonomi
Educational program
Magister i finans
Supervisors
Examiners
Available from: 2023-11-15 Created: 2023-11-08 Last updated: 2023-11-15Bibliographically approved

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Citation style
  • apa
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  • Other style
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  • de-DE
  • en-GB
  • en-US
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  • nn-NO
  • nn-NB
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