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Federal Reserve Bank of Philadelphia
Working Papers
Firm default and aggregate fluctuations
Tor Jacobson
Rikard Kindell
Jesper Linde
Kasper Roszbach
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.


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Tor Jacobson & Rikard Kindell & Jesper Linde & Kasper Roszbach, Firm default and aggregate fluctuations, Federal Reserve Bank of Philadelphia, Working Papers 08-21, 2008.
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Keywords: Business failures
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