Using a large sample of accounting data for non financial companies in France on the period 1990-2004, the paper studies the interactions between macroeconomic shocks and companies financial fragility. We consider links in both directions, namely whether .rms. bankruptcies are affected by macroeconomic variables, and, conversely, whether bankruptcies determine the business cycle. We estimate forecasting equations for firms' bankruptcy using Schumway’s (2001) approach and study the joint dynamics of defaults and macroeconomic variables, in order to measure the so-called "second round" effects. We illustrate how the model can be used for stress testing.
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Paper provided by Banque de France in its series Documents de Travail with number
226.
Find related papers by JEL classification: G3 - Financial Economics - - Corporate Finance and Governance C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
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