Determinants of corporate default: a BMA approach

Model uncertainty hampers consensus on the main determinants of corporate default. We employ Bayesian model averaging (BMA) techniques in order to shed light on this issue. Empirical findings suggest that the most robust determinants of corporate default are firm-specific variables such as the ratio of working capital to total assets, the ratio of retained earnings to total assets, the ratio of total liabilities to total assets and the standard deviation of the firm’s stock return. In contrast, aggregate variables do not seem to play a relevant role once firm-specific characteristics (observable and unobservable) are taken into consideration