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Measuring the Financial Soundness of U.S. Firms, 1926-2012

Andrew Atkeson, Andrea Eisfeldt and Pierre-Olivier Weill ()

No 19204, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Building on the Merton (1974) and Leland (1994) structural models of credit risk, we develop a simple, transparent, and robust method for measuring the financial soundness of individual firms using data on their equity volatility. We use this method to retrace quantitatively the history of firms' financial soundness during U.S. business cycles over most of the last century. We highlight three main findings. First, the three worst recessions between 1926 and 2012 coincided with insolvency crises, but other recessions did not. Second, fluctuations in asset volatility appear to drive variation in firms' financial soundness. Finally, the financial soundness of financial firms largely resembles that of nonfinancial firms.

JEL-codes: E32 E44 G3 (search for similar items in EconPapers)
Date: 2013-07
New Economics Papers: this item is included in nep-his and nep-mac
Note: AP CF EFG ME
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Published as Andrew G. Atkeson & Andrea L. Eisfeldt & Pierre-Olivier Weill, 2017. "Measuring the financial soundness of U.S. firms, 1926–2012," Research in Economics, vol 71(3), pages 613-635.

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Journal Article: Measuring the financial soundness of U.S. firms, 1926–2012 (2017) Downloads
Working Paper: Measuring the financial soundness of U.S. firms, 1926-2012 (2013) Downloads
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