The bank-firm relationship in default prediction models: An analysis on a sample of Italian firms

The aim of this paper is to evaluate the contribution of several aspects of the bank-firm relationships in anticipating the corporate default event at least one year before. Using a unique dataset on a sample of 113 co-operative credit banks and about 12,000 firms operating in Italy, between 2012 and 2013, this paper documents that checking accounts and long-term loans activities provide additional explanatory power respect to financial information gathered from balance sheets in predicting the likelihood of default. Estimating a probit model, it finds that overdrafts and usage of credit lines on checking accounts, as well as overdrafts and payments overdue on long-term loans increase the accuracy prediction of default events by about 10%.