Difference in the determinants of debt default by the business sector of the self-employed

Abstract

This study explores the determinants of debt default by the self-employed with a focus on the difference in the determinants by the business sector. Estimation of Logit models using the data constructed by linking the Korea Credit Bureau data with the data from the Korea Credit Information Services reveals the following. First, in addition to the demographic characteristics and the financial characteristics of the debtor, the business sector of the self-employed also has a significant power in explaining the likelihood of debt default. Second, the effect of economic factors on the likelihood of debt default by the self-employed differs with the business sector. While the food & lodging sector is sensitive to interest rate shocks, the manufacturing sector and the wholesale & retail trade sector are sensitive to regional business cycle shocks. The real estate rental sector is sensitive to interest rate shocks and housing price shocks. Lastly, we find that information about the enterprise loans owed by the self-employed is useful in evaluating the default risk of the self-employed. The larger is the size of enterprise loans, the higher is the risk of default. The effect of the size of enterprise loans on the default risk of the self-employed also differs with the business sector.