Default Risk Analysis in Micro, Small and Medium Enterprises: Does Debt Overhang Theory Occur?

Asian Academy of Management Journal of Accounting and Finance, Vol. 10, No. 1, 95-131, 2014

37 Pages Posted: 3 May 2013 Last revised: 14 Nov 2015

See all articles by Imam Wahyudi

Imam Wahyudi

University of Indonesia (UI) - Department of Management, Faculty of Economics and Business, University of Indonesia

Date Written: June 2, 2014

Abstract

This paper intends to analyse the default risk in micro, small and medium enterprises (MSMEs) 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 analysing the rating transition behaviour, we found that the further the rating migrates, the smaller the probability of transition and that 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 relationships between banks and MSMEs.

Keywords: microfinance, debt overhang, enterprise, default risk, finance

JEL Classification: C14, C2, E51, G21, G3, O53

Suggested Citation

Wahyudi, Imam, Default Risk Analysis in Micro, Small and Medium Enterprises: Does Debt Overhang Theory Occur? (June 2, 2014). Asian Academy of Management Journal of Accounting and Finance, Vol. 10, No. 1, 95-131, 2014, Available at SSRN: https://ssrn.com/abstract=2259371 or http://dx.doi.org/10.2139/ssrn.2259371

Imam Wahyudi (Contact Author)

University of Indonesia (UI) - Department of Management, Faculty of Economics and Business, University of Indonesia ( email )

Jl. Prof. Dr. Sumitro Djojohadikusumo,
Kampus UI Depok
Depok, West Java 16424
Indonesia
+62217272425 (Phone)
+62217863556 (Fax)

HOME PAGE: http://staff.ui.ac.id

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