Probabilities of default
: what is the impact of Covid-19 in portuguese micro-enterprises?

  • José Pedro Nolasco Amaral Gomes Cruz (Student)

Student thesis: Master's Thesis


This dissertation aims to quantify the impact of the current pandemic on Portuguese micro-enterprises credit risk. To this end, the probability of bankruptcy before and after the pandemic shock is calculated using a modified version of the structural model proposed by Eisdorfer, Goyal, & Zhdanov (2019). For this exercise, representative firms were created for each of the 14 sectors under analysis. These firms were created using a database of over 200 000 firms with observations ranging between 2006 and 2018. Sector specific shocks are calibrated using data from the quick survey on the impact of the pandemic shock on firms’ business, by Statistics Portugal and by the Banco de Portugal. The results of this exercise suggest that the Accommodation and Food Services sector is the most affected sector with its probability of default within two-years increasing from 1.49% to 14.20%. On average the two-year cumulative probability of default increases by 6.46 percentage points with the current pandemic. Understanding the determinants of the shock impact, the initial liquidity level reveals to be an important factor. This dissertation demonstrates that a higher level of cash allows firms to minimize the impact of the current pandemic on the distance to default.
Date of Award27 Apr 2021
Original languageEnglish
Awarding Institution
  • Universidade Católica Portuguesa
SupervisorDiana Bonfim (Supervisor) & Nuno Silva (Co-Supervisor)


  • Probabilities of default
  • Distance to default
  • Credit risk
  • Micro-enterprises
  • Covid-19


  • Mestrado em Finanças

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