Multi-Period Corporate Failure Prediction with Stochastic Covariates

Darrell Duffie and Ke Wang

No 10743, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We provide maximum likelihood estimators of term structures of conditional probabilities of bankruptcy over relatively long time horizons, incorporating the dynamics of firm-specific and macroeconomic covariates. We find evidence in the U.S. industrial machinery and instruments sector, based on over 28,000 firm-quarters of data spanning 1971 to 2001, of significant dependence of the level and shape of the term structure of conditional future bankruptcy probabilities on a firm's distance to default (a volatility-adjusted measure of leverage) and on U.S. personal income growth, among other covariates.Variation in a firm's distance to default has a greater relative effect on the term structure of future failure hazard rates than does a comparatively sized change in U.S. personal income growth, especially at dates more than a year into the future.

JEL-codes: C41 E44 G33 (search for similar items in EconPapers)
Date: 2004-09
New Economics Papers: this item is included in nep-bec
Note: CF AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Published as Duffie, Darrell, Leandro Saita and Ke Wang. "Multi-Period Corporate Default Prediction with Stochastic Covariates,." Journal of Financial Economics 83 (2007): 635-665.

Downloads: (external link)
http://www.nber.org/papers/w10743.pdf (application/pdf)

Related works:
Working Paper: Multi-Period Corporate Failure Prediction With Stochastic Covariates (2004)
Working Paper: Multi-Period Corporate Failure Prediction With Stochastic Covariates (2004)
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:nbr:nberwo:10743

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w10743

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().