Default probabilities in the Jordanian companies : using LPM, LOGIT and PROBIT

This paper aims to investigate the factors that affect the probability of default for the Jordanian companies. A LPM, LOGIT and PROBIT models are used to outline the relationship between firm's financial health and the probability of default. A comparison between these three models is made employing data from Jordanian firms. The main findings are: (1) cash flow is able to predict the probability of default and it is significance for Jordanian firms, (2) firm's capilal structure is fundamental in predicting default from non-default. Capital structure is seen as the main factor affecting the probability of default as it affects firm's ability to have access to the external source of funds. (4) Jordanian firms depend on short-term debt for both short and long term financing. (5) Firm's age and size are not significant factors in predicting default.