4/2007 Kadri Männasoo. Determinants of firm sustainability in Estonia

Working Papers of Eesti Pank. No 4/2007

This paper examines the determinants of firm sustainability in Estonia using discrete-time survival analysis with a complementary log-log hazard function. A firm is defined as sustainable if it meets the minimum capital requirement set by the law, and if it does not then it is described as being "distressed". The definition of "in default" stipulates that not only must the firm be short of the required capital, but it should also have exited or dropped out altogether. This study confirms the stylized fact that firms face higher risk during their start-up period. Firm distress and default hazard decrease over time, the latter however, non-monotonically being lagged relative to distress. At the industry level, manufacturing firms demonstrate a higher degree of robustness compared to trade and services companies. Most importantly, however, firm sustainability positively depends on efficiency, good stable asset return, low leverage and a large assets base.
JEL Code: G33, C41
Key words: firm default, survival analysis

Author's e-mail address: kadri.mannasoo [at] epbe.ee

The views expressed are those of the author and do not necessarily represent the official views of Eesti Pank.


1. Introduction
2. Data description and definition of firm sustainability
3. Descriptive analysis and selection of explanatory variables
3.1. Descriptive statistics
3.2. Selection of explanatory variables
4. Survival analysis
4.1. Methodology
4.2. Results of survival estimations
5. Conclusions
Appendix I
Appendix II
Appendix III

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