Firm default and aggregate fluctuations

Tor Jacobson, Jesper Lindé and Kasper Roszbach ()

No 1029, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper studies the relationship between macroeconomic fluctuations and corporate defaults while conditioning on industry affiliation and an extensive set of firm-specific factors. By using a panel data set for virtually all incorporated Swedish businesses over 1990-2009, a period which includes a full-scale banking crisis, we find strong evidence for a substantial and stable impact from aggregate fluctuations on business defaults. A standard logit model with financial ratios augmented with macroeconomic factors can account surprisingly well for the outburst in business defaults during the banking crisis, as well as the subsequent fluctuations in default frequencies. Moreover, the effects of macroeconomic variables differ across industries in an economically intuitive way. Out-of-sample evaluations show that our approach is superior to models that exclude macro information and standard well-fitting time-series models. Our analysis shows that firm-specific factors are useful in ranking firms' relative riskiness, but that macroeconomic factors are necessary to understand fluctuations in the absolute risk level.

Keywords: Business failures - Sweden; Business cycles - Econometric models (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-bec, nep-ent, nep-mac and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: FIRM DEFAULT AND AGGREGATE FLUCTUATIONS (2013)
Working Paper: Firm Default and Aggregate Fluctuations (2008)
Working Paper: Firm default and aggregate fluctuations (2008)
Working Paper: Firm Default and Aggregate Fluctuations (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1029

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