Cyclicality and Firm Size in Private Firm Defaults

Thais Lærkholm Jensen, David Lando and Mamdouh Medhat
Additional contact information
Thais Lærkholm Jensen: University of Copenhagen and Danmarks Nationalbank
Mamdouh Medhat: Cass Business School – City, University of London

International Journal of Central Banking, 2017, vol. 13, issue 4, 97-145

Abstract: The Basel II/III and CRD IV Accords reduce capital charges on bank loans to smaller firms by assuming that the default probabilities of smaller firms are less sensitive to macroeconomic cycles. We test this assumption in a default intensity framework using a large sample of bank loans to private Danish firms. We find that controlling only for size, the default probabilities of small firms are, in fact, less cyclical than the default probabilities of large firms. However, accounting for firm characteristics other than size, we find that the default probabilities of small firms are equally cyclical or even more cyclical than the default probabilities of large firms. These results hold using a multiplicative Cox model as well as an additive Aalen model with time-varying coefficients.

Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.ijcb.org/journal/ijcb17q4a4.pdf (application/pdf)
http://www.ijcb.org/journal/ijcb17q4a4.htm (text/html)

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:ijc:ijcjou:y:2017:q:4:a:4

Access Statistics for this article

International Journal of Central Banking is currently edited by Loretta J. Mester

More articles in International Journal of Central Banking from International Journal of Central Banking
Bibliographic data for series maintained by Bank for International Settlements ().