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Macroeconomic fluctuations and corporate financial fragility

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  • Bruneau, C.
  • de Bandt, O.
  • El Amri, W.

Abstract

Using a large sample of accounting data for non-financial companies in France, this paper studies the interactions between macroeconomic shocks and companies’ financial fragility. We consider links in both directions, namely whether firms’ bankruptcies are affected by macroeconomic variables, and whether bankruptcies determine the business cycle. We estimate forecasting equations for firms’ bankruptcy using Shumway's (2001) approach and study the joint dynamics of bankruptcies and macroeconomic variables within an exogenous VAR type model estimated at the sector level. We find evidence of reciprocal links between the bankruptcy rate and the output gap and highlight significant “second round effects” of shocks to the output gap on bankruptcies. We show how taking into account the dynamic transmission of macroeconomic shocks matters in stress testing exercises.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Stability.

Volume (Year): 8 (2012)
Issue (Month): 4 ()
Pages: 219-235

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Handle: RePEc:eee:finsta:v:8:y:2012:i:4:p:219-235

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Web page: http://www.elsevier.com/locate/jfstabil

Related research

Keywords: Financial fragility; Macroeconomic shocks; Corporate bankruptcies; Multi-period Logit model; Stress testing; Second round effects;

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References

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Cited by:
  1. Jože P. Damijan, 2014. "Corporate financial soundness and its impact on firm performance: Implications for corporate debt restructuring in Slovenia," Working Papers 168, European Bank for Reconstruction and Development, Office of the Chief Economist.
  2. Costas Milas, 2014. "Financial Stress and the Impact of Public Debt on UK Growth in High versus Low-Growth Regimes: 1850-2013," Working Paper Series 13_14, The Rimini Centre for Economic Analysis.

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