Determinants of Corporate Bankruptcy in the Ecuadorian Oil Sector

Abstract

In Ecuador, the “Oil and Mining” and “Oil Refining” activities averaged 6% of the GDP during the 2018-2020 period, and they also represented 9.06% of the total revenue in the General State Budget (GSB) during the same period. This underscores the significance of studying this sector. In line with the analysis of systemic risk in this research, the determinants of business failure are identified using data from 24 economic and financial indicators estimated between 2015 and 2020. Findings from a logistic regression model reveal that risk factors or variables increasing the probability of bankruptcy include “Long-Term Debt,” “Current Equity Indebtedness,” “Impact of Administrative
and Sales Expenses,” and “Fixed Asset Leverage.” In contrast, “Asset Profitability,” “Financial Leverage: Greater than 29,” and “‘Industry: Wholesale and Retail Trade, Motor Vehicle Repair” were found to be protective factors, reducing the risk of business failure. The results highlight the key financial indicators that should be continuously monitored by the regulatory body in Ecuador and by companies themselves to prevent corporate bankruptcy, thus reducing systemic risk and the potential negative economic consequences it entails