Macroeconomic fluctuations and corporate financial fragility

C. Bruneau, Olivier de Bandt and Wydad El Amri

Journal of Financial Stability, 2012, vol. 8, issue 4, 219-235

Abstract: Using a large sample of accounting data for non-financial companies in France, this paper studies the interactions between macroeconomic shocks and companies’ financial fragility. We consider links in both directions, namely whether firms’ bankruptcies are affected by macroeconomic variables, and whether bankruptcies determine the business cycle. We estimate forecasting equations for firms’ bankruptcy using Shumway's (2001) approach and study the joint dynamics of bankruptcies and macroeconomic variables within an exogenous VAR type model estimated at the sector level. We find evidence of reciprocal links between the bankruptcy rate and the output gap and highlight significant “second round effects” of shocks to the output gap on bankruptcies. We show how taking into account the dynamic transmission of macroeconomic shocks matters in stress testing exercises.

Keywords: Financial fragility; Macroeconomic shocks; Corporate bankruptcies; Multi-period Logit model; Stress testing; Second round effects (search for similar items in EconPapers)
JEL-codes: C41 D21 E32 G33 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (23)

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Related works:
Working Paper: Macroeconomic Fluctuations and Corporate financial Fragility (2012)
Working Paper: Macroeconomic Fluctuations and Corporate financial Fragility (2012)
Working Paper: Macroeconomic Fluctuations and Corporate financial Fragility (2012)
Working Paper: Macroeconomic Fluctuations and Corporate Financial Fragility (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:8:y:2012:i:4:p:219-235

DOI: 10.1016/j.jfs.2012.02.002

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