Big and fragile: when size does not shield from default

Abstract

Analysing a large sample of Italian firms we find that the probability of default increases with size. This contrasts with the common observation, based on measures of exit from business registry data, that firms' death rate is inversely related to the scale of their operation and suggests a rethinking of the economic role of larger companies.

Acknowledgement

The research leading to these results has received funding from the European Community's Seventh Framework Programme (FP7/2007–2013) under Socio-economic Sciences and Humanities, grant agreement no. 217466.

Notes

¹Only few studies try and propose a more structured reclassification of exit events, see Honjo (2000) and Esteve-Pèrez et al. (2010).

²Results are not sensitive to reallocation of the nine original groups into the three classes. See, Bottazzi et al. (2009) for more details and for the inclusion of different financial indicators.

³Sectoral dummies are also included, but not reported because they are nonsignificant.

⁴Given the possible nonlinear effects suggested by Fig.1(b), we also experimented with a quadratic term for size, ln²(SIZE_t ). Results confirmed the positive effect of size, whereas the other coefficients remain practically unchanged.

⁵Sources: Italian Statistical Office (ISTAT) – annual survey on bankruptcies and Italian Chambers of Commerce (UNIONCAMERE) – Movimprese database on firm demography.