Macroeconomic conditions, corporate default, and default clustering

Kai Xing, Dan Luo and Lanlan Liu

Economic Modelling, 2023, vol. 118, issue C

Abstract: This study investigates how, and to what extent, macroeconomic conditions interact with corporate default in the US industrial sector from 1980 to 2014. Using an extensive data set of macro-level and micro-level variables, we construct five categories of indicators and measure macroeconomic conditions by investigating the co-movements within each category of indicator. We find macroeconomic conditions have bidirectional causal interaction with corporate defaults across different economic regimes, reflecting the existence of feedback causality. Moreover, we show that macroeconomic indicator constructed using the least absolute shrinkage and selection operator (LASSO) approach shows superior explanatory power as well as predictive power for default clustering, indicating that movements of these indicators cause correlated changes in firms' default rates. Overall, our study provides support for literature on default probability estimation from a macroeconomic perspective.

Keywords: Macroeconomic conditions; Macro indicator; Corporate default; Default clustering; Default prediction (search for similar items in EconPapers)
JEL-codes: E32 G01 G10 G33 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999322003169
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:118:y:2023:i:c:s0264999322003169

DOI: 10.1016/j.econmod.2022.106079

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().