The magnitude and Cyclical Behavior of Financial Market Frictions



Table 3

NLLS Estimates of Bankruptcy Cost Parameter μ

Period

Obs.

Estimate

Std. Err. a

Adj. R2

Pr > λIb

1997Q2

327

0.144

0.041

045

< . 01

1997Q3

349

0.105

0.029

0.41

<.01

1997Q4

368

0.139

0.040

0.47

<.01

1998Q1

392

0.080

0.051

0.40

<.01

1998Q2

399

0.074

0.030

0.36

<.01

1998Q3

427

0.074

0.032

0.38

<.01

1998Q4

442

0.239

0.046

0.49

<.01

1999Q1

458

0.163

0.038

0.48

<.01

1999Q2

460

0.121

0.031

0.49

<.01

1999Q3

438

0.106

0.044

0.42

<.01

1999Q4

442

0.178

0.048

0.49

<.01

2000Q1

463

0.193

0.052

0.52

<.01

2000Q2

476

0.275

0.050

0.56

<.01

2000Q3

487

0.262

0.038

0.59

<.01

2000Q4

492

0.496

0.063

0.58

<.01

2001Q1

490

0.472

0.064

0.52

<.01

2001Q2

500

0.485

0.077

0.60

<.01

2001Q3

489

0.400

0.078

0.58

<.01

2001Q4

480

0.401

0.079

0.53

<.01

2002Q1

497

0.291

0.058

0.52

<.01

2002Q2

508

0.290

0.062

0.53

<.01

2002Q3

502

0.349

0.062

0.54

<.01

2002Q4

523

0.443

0.055

0.54

<.01

2003Q1

537

0.342

0.040

0.54

<.01

2003Q2

523

0.186

0.029

0.47

<.01

2003Q3

520

0.203

0.043

0.46

< . 01

Notes: In every period, the sample excludes firms with leverage ratios below
the 2
.5th percentile and above the 97.5th percentile, firms with credit spreads above
the 97
.5th 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 λI of the exclusion of fixed industry
effects.

32



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