Credit Risk Cascades in Interfirm Networks: Joint Effects of Business Cycles, Redundant Resources, and Intangible Assets

Hui Lai, Qixuan Du and Yongkui Li

Discrete Dynamics in Nature and Society, 2026, vol. 2026, 1-22

Abstract: This study develops a novel cascading failure model to investigate credit risk contagion in interfirm networks, integrating three key drivers of business cycles (α), redundant resources (γ), and intangible assets (δ) into a unified framework. Using computational simulations with discrete and continuous sensitivity analyses, we obtain three main findings. First, we identify a differential triggering mechanism: Hub firms (E−LICR) are more destructive during upswings, while peripheral firms (E−SICR) pose greater threats during downturns, with a robust switching threshold at α∗≈0.6. Second, redundant resources exhibit a risk-buffering effect: Network resilience increases monotonically with γ, which consistently enhances network resilience across all business cycle phases. Third, intangible assets play a protective role: Abundant intangibles enhance risk-bearing capacity, with a critical region δ∈0.7,1.1. All findings are robust across alternative risk distributions and network topologies. This framework and model offers a theoretical lens for understanding how macroeconomic conditions and firm-specific resources interact to shape credit risk propagation, informing cycle-dependent macroprudential policy and enterprise risk management.

Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:hin:jnddns:4959997

DOI: 10.1155/ddns/4959997

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