Norges Bank

Working Paper

The relationship between bankruptcy risk and growth for non-listed firms

Author:
Kjell Bjørn Nordal and Randi Næs
Series:
Working Paper
Number:
31/2010

Abstract
We investigate the relationship between bankruptcy risk and expected future sales growth for Norwegian non-listed firms for the period 1988-2007. We find that firms with high bankruptcy risk also have high expected future growth. Financial ratios characterizing firms with high bankruptcy risk also characterize firms with high future expected growth. Small firms, firms with low levels of equity and retained earnings, firms with low profitability and low levels of sales per unit of capital, have all higher expected future growth rates than other firms. These findings suggest a tradeoff between the upside potential of high growth and the downside risk of bankruptcy.

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ISSN 1502-8190 (online)

Published 22 December 2010 17:59
Published 22 December 2010 17:59