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Macroeconomic effects of corporate default crisis: A long-term perspective

Author

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  • Giesecke, Kay
  • Longstaff, Francis A.
  • Schaefer, Stephen
  • Strebulaev, Ilya A.

Abstract

Using an extensive data set on corporate bond defaults in the US from 1866 to 2010, we study the macroeconomic effects of bond market crises and contrast them with those resulting from banking crises. During the past 150 years, the US has experienced many severe corporate default crises in which 20–50% of all corporate bonds defaulted. Although the total par amount of corporate bonds has at times rivaled the amount of bank loans outstanding, we find that corporate default crises have far fewer real effects than do banking crises. These results provide empirical support for current theories that emphasize the unique role that banks and the credit and collateral channels play in amplifying macroeconomic shocks.

Suggested Citation

  • Giesecke, Kay & Longstaff, Francis A. & Schaefer, Stephen & Strebulaev, Ilya A., 2014. "Macroeconomic effects of corporate default crisis: A long-term perspective," Journal of Financial Economics, Elsevier, vol. 111(2), pages 297-310.
    • Handle: RePEc:eee:jfinec:v:111:y:2014:i:2:p:297-310
    DOI: 10.1016/j.jfineco.2013.10.014
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    More about this item

    Keywords

    Banking crises; Financial crises; Corporate default rates;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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