A synthetic indicator of financial pressure for Spanish firms

In this paper, we construct a firm-level estimate of the probability of default for a large sample of Spanish firms that can be interpreted as a composite measure of individual corporate financial pressure. By combining firms¿ accounting data from the Central Balance Sheet Data Office of the Banco de España with credit data from the Spanish Central Credit Register, we obtain a large data set (80,701 observations) covering a significantly longer time period (1985-2001) than is usual in the literature. Our results point to the importance of income leverage (together with other relatively standard financial ratios) for the financial pressure on firms, but also to the relevance of non-linearities and the inability of purely firm-level variables to capture completely the temporal behaviour of aggregate firm default rates. Thus, the real GDP growth rate and an average interest cost of debt are significant additional predictors of a firm¿s probability of default.