Macroeconomic Fluctuations and Corporate financial Fragility

Catherine Bruneau (), Olivier de Bandt and W. Elamri
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Catherine Bruneau: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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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)
Date: 2012-12
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Published in Journal of Financial Stability, 2012, 8 (4), pp.219-235. ⟨10.1016/j.jfs.2012.02.002⟩

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Related works:
Journal Article: 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:hal:pseptp:hal-00666757

DOI: 10.1016/j.jfs.2012.02.002

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