The determinants of corporate failure in Italian, Spanish and French small and medium-sized enterprises are investigated in order to find out whether the predictors of financial distress in the countries are the same or not. In order to compare the determinants of financial distress, accounting-based credit-scoring models for each country are estimated. The analysis uses a data set provided by Bureau van Dijk. The great virtue of the data set is that it enables us to make cross-country comparisons. On the negative side it should be mentioned that the data set, when looking at each country individually, is not as good as some of the data sets used in the individual country studies (in the sense that a number of firms drop out of the panel with no explanation). The comparison of the significance and sign of the determinants of financial distress in the three countries shows, that although there are some similarities across countries, there are also quite a lot of differences. Some of the variables that behave similarly across countries are the earnings ratio and the solvency ratio. The variables, whose effect differs between the countries in terms of whether or not they are significant or what sign they have, are the loans to total assets ratio, size, age, legal form and a variable, which measures the concentration of ownership. Apart from the individual credit-scoring models a model including all countries is estimated. As valid estimates of the probability of default for individual banks require a considerable amount of data, Basel II allows for banks to pool their data with other banks in order to overcome their data shortcomings. In this way a number of international data pooling projects have emerged, where banks from various countries pool their data. Because of this development and as, furthermore, many credit institutions in Europe have cross-border activities, the choice between setting up individual country credit-scoring models or a common credit-scoring model is relevant, when calculating capital requirements for banks. The comparison of the significance and sign of the parameter estimates and the predictive ability of the individual country credit-scoring models and the pooled model show that the pooled model delivers results that differ to quite an extent from the individual country credit-scoring models. There are few studies, which do compare the determinants of financial distress across countries. To the best of our knowledge, this is the first comparative accounting-based credit-rating study of a fairly homogenous group of countries, and so it fills a gap in the literature.
