Firm Default and Aggregate Fluctuations
45 Pages Posted: 16 Feb 2009
Date Written: February, 16 2009
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 multiperiod 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 cycles, default, default-risk model, logit model, macroeconomic variables and micro-data
JEL Classification: C35, C41, C52, E44, G21 and G33
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