Default Risk Analysis in Micro, Small and Medium Enterprise

What is it about?

This paper intends to analyze the default risk in micro, small and medium enterprise (MSME) and its relation to new debt opportunities, debt overhang theory and growth intention. The results confirm that cash flow, capacity and leverage are the major determinants of firms default while gross margin and efficiency measure are not significant predictors. By analyzing the rating transition behaviour, we found that the farther the rating, the smaller the probability of transition, and the probability towards default is greater along with the decreased quality rating. By extending the analysis, we found that the debt overhang theory is not applied in relation between bank-MSME. When the firms in need of fund, even in financial distress, bank will keep on injecting the fund.

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