Firm default and aggregate fluctuations
Abstract: This paper studies the relation between macroeconomic fluctuations and corporate defaults while conditioning on industry affiliation and an extensive set of firm-specific factors. Using a logit approach on a panel data set for all incorporated Swedish businesses over 1990-2002, we find strong evidence for a substantial and stable impact of aggregate fluctuations. Macroeffects differ across industries in an economically intuitive way. Out-of-sample evaluations show our approach is superior to both models that exclude macro information and best fitting naive forecasting models. While firm-specific factors are useful in ranking firms? relative riskiness, macroeconomic factors capture fluctuations in the absolute risk level.
Keywords: Business failures;
File(s): File format is application/pdf https://www.philadelphiafed.org/-/media/frbp/assets/working-papers/2008/wp08-21.pdf
Provider: Federal Reserve Bank of Philadelphia
Part of Series: Working Papers
Publication Date: 2008