Abstract
Most models in the bankruptcy prediction literature implicitly assume
companies are stand-alone entities. However, in view of the importance
of business groups in Continental Europe, ignoring group ties may
have a negative impact on predictive reliability. We find that models
encompassing both bankruptcy variables defined at subsidiary level
and at group level have a substantially better fit and classification
performance. Furthermore we find that the group's support causes
improved survival chances for subsidiaries, especially when these
subsidiaries belong to the group's core business. Overall our results
are consistent with existing theoretical and empirical findings from
the internal capital markets literature.
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