Economic and financial determinants of firm bankruptcy: evidence from the French food industry

Abstract

Despite the strong resilience of the French food industry during the recent economic crisis, the bankruptcy rate for this sector has dramatically increased since 2010. This paper focuses on the economic and financial determinants of firm exit due to bankruptcy in the French food industry and compares them with those for other manufacturing industries. Based on a large sample of firm-level data for the period 2001–2012, we show that the bankruptcy risk pattern differs between food industry firms and other manufacturing firms. Firm productivity is an important determinant of a firm’s probability of going bankrupt; productivity begins deteriorating 3 years before a failure. Controlling for firm productivity, we also show that credit cost has a positive and significant impact on the probability of bankruptcy. However, we observe smaller effect of credit cost on firms’ bankruptcy risk. In contrast, productivity appears to have an important beneficial effect on bankruptcy risk reduction.