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- W2988893891 abstract "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. • We study default risk in small and large firms with a large EU sample. • Financial leverage increases default risk more for SMEs than large firms. • SME are more sensitive to leverage because of their higher refinancing risk. • SMEs with longer maturity debt are more likely to recover from default." @default.
- W2988893891 created "2019-11-22" @default.
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- W2988893891 date "2020-02-01" @default.
- W2988893891 modified "2023-10-12" @default.
- W2988893891 title "The differential impact of leverage on the default risk of small and large firms" @default.
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- W2988893891 doi "https://doi.org/10.1016/j.jcorpfin.2019.101541" @default.
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