Abstract:I combine two fields of research on default prediction by empirically testing a bankruptcy prediction function where unlisted firms are evaluated on the basis of both their financial statement analysis and the macroeconomic environment. This combination is found to improve the default prediction compared to financial statements alone. The GDP-gap, a production index and the money supply M1 in combination with some financial health indicators for individual firms are found to be significant predictors on default for Norwegian firms during both a recovery and expansion in the 1990's.

This article presents an analysis of how Norwegian nonlisted firms are financed. Using a unique database covering all limited liability firms in Norway, both the size (leverage) and composition (maturity structure) of debt are investigated. The empirical evidence provides support for the effects of taxes, asymmetric information and size suggested in the theoretical literature and rejects the effects of agency costs and the pecking order theory. It also shows that the capital structure choice in these firms is not made in a fundamentally different way than in large firms.

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