The magnitude and Cyclical Behavior of Financial Market Frictions

Table 2

NLLS Estimates of Bankruptcy Cost Parameter μ

Period	Obs.	Estimate	Std. Err. a	Adj. R^ⁱ	Pr > λR^b	Pr > λι^c
1997Q2	327	0.131	0.037	018	< . 01	019
1997Q3	349	0.105	0.022	0.88	<.01	0.15
1997Q4	368	0.139	0.035	0.88	<.01	0.57
1998Q1	392	0.080	0.047	0.87	<.01	0.68
1998Q2	399	0.074	0.028	0.83	<.01	0.72
1998Q3	427	0.074	0.034	0.84	<.01	0.39
1998Q4	442	0.228	0.044	0.85	<.01	<.01
1999Q1	458	0.145	0.037	0.81	<.01	<.01
1999Q2	460	0.112	0.031	0.77	<.01	0.05
1999Q3	438	0.088	0.047	0.72	<.01	0.29
1999Q4	442	0.165	0.043	0.69	<.01	0.16
2000Q1	463	0.188	0.056	0.69	<.01	0.53
2000Q2	476	0.273	0.055	0.71	<.01	0.59
2000Q3	487	0.253	0.039	0.70	<.01	0.12
2000Q4	492	0.458	0.069	0.65	<.01	<.01
2001Q1	490	0.406	0.069	0.62	<.01	<.01
2001Q2	500	0.463	0.079	0.70	<.01	<.01
2001Q3	489	0.386	0.075	0.73	<.01	<.01
2001Q4	480	0.372	0.070	0.74	<.01	<.01
2002Q1	497	0.291	0.062	0.76	<.01	<.01
2002Q2	508	0.292	0.062	0.75	<.01	<.01
2002Q3	502	0.359	0.064	0.76	<.01	<.01
2002Q4	523	0.444	0.052	0.73	<.01	<.01
2003Q1	537	0.330	0.039	0.77	<.01	<.01
2003Q2	523	0.164	0.029	0.77	<.01	<.01
2003Q3	520	0.186	0.041	0.77	< . 01	< . 01

Notes: In every period, the sample excludes firms with leverage ratios below the
2.5^th percentile and above the 97.5^th percentile, firms with credit spreads above the
97.5^th percentile, and firms with EDFs at exactly 20%.

^aComputed using a heteroscedasticity-consistent asymptotic covariance matrix; see White
(1980).

^bp-value for the likelihood ratio test statistic λR of the exclusion of fixed credit rating
effects.

^cp-value for the likelihood ratio test statistic λI of the exclusion of fixed industry effects.

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The magnitude and Cyclical Behavior of Financial Market Frictions

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