This research paper by Daisuke Tsuruta from Nihon University empirically analyzes the determinants of exit and performance of small and medium enterprises after default.
Using firm-level data from Japan, this study provides detailed analysis of performance differences between SMEs that defaulted on bank loans and non-defaulted firms. The analysis reveals that bank loans, return on assets (ROA), and sales growth rates decline significantly after default. Critically, the study finds that these negative effects persist for approximately 10 years even when firms survive, highlighting the severity and persistence of constraints imposed by default on corporate performance.
Analysis of survival factors shows that real factors such as asset growth rate, ROA, and sales growth rate, along with the presence of younger managers and successors, positively influence post-default firm survival. This suggests that real factors play important roles in corporate recovery after default. Meanwhile, financial indicators such as interest rates on interest-bearing debt and debt ratios were confirmed to have negative impacts on post-default firm survival.
Regarding the effects of financial support, the results are complex: while additional bank financing and interest payment relief positively affect post-default sales growth, they negatively impact ROA. This suggests that the impact of bank financial support on the survival of defaulted firms is limited, indicating that financial support alone may be insufficient for fundamental corporate recovery.
The article empirically demonstrates that improving firms' real strengths and management capabilities is more important than financial support for SME recovery after default.