Determinants of Firms’ Default Risk after the 2008 and 2011 Economic Crises: a Latent Growth Models Approach

Between 2008 and 2009, European countries became mired in the Great Recession, derived from the US subprime crisis, with financial contraction and bank failures spreading out across the Atlantic and causing damage to financial markets and the real economy. Then, starting in 2011, the crisis affected the euro zone and the sovereign debts of European countries until 2014. For Italy, the crisis period led to a deep negative conjuncture until 2009 and then to a slight recovery until the first half of 2011 and an intense recession from 2011 to 2015. The aims of this work are to identify some determinants of the defaults of Italian firms during the years 2008– 2012 and to understand the effects of the Great Recession on the default probability. To perform this analysis, a Latent Growth Curve Model is proposed, using an important Italian private database of Italian firms.