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The outlook for business bankruptcies

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  • Ryan Niladri Banerjee
  • Giulio Cornelli
  • Egon Zakrajšek

Abstract

Economic growth and forward-looking indicators of default risk inferred from equity markets, two variables that together predict business bankruptcies in advanced economies, show bankruptcies rising significantly by the end of 2021. Projections of real GDP growth embedded in the consensus forecast account for the bulk of this projected increase. Unlike in previous downturns, the stock market-based default indicators contribute very little. As these findings underscore, the pandemic and unprecedented government support for the business sector have driven a sizeable wedge between financial market perceptions of default risk and projections for economic activity.

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  • Ryan Niladri Banerjee & Giulio Cornelli & Egon Zakrajšek, 2020. "The outlook for business bankruptcies," BIS Bulletins 30, Bank for International Settlements.
    • Handle: RePEc:bis:bisblt:30
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    References listed on IDEAS

    as
    1. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    2. Ryan Banerjee & Boris Hofmann, 2022. "Corporate zombies: anatomy and life cycle," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 37(112), pages 757-803.
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    Cited by:

    1. Fergal McCann & Niall McGeever & Fang Yao, 2023. "SME viability in the COVID-19 recovery," Small Business Economics, Springer, vol. 61(3), pages 1053-1074, October.
    2. Mikael Juselius & Nikola Tarashev, 2020. "Forecasting expected and unexpected losses," BIS Working Papers 913, Bank for International Settlements.
    3. Li, Shanshan, 2022. "COVID-19 and A-share banks' stock price volatility: From the perspective of the epidemic evolution in China and the US," Global Finance Journal, Elsevier, vol. 54(C).
    4. Ryan Niladri Banerjee & Enisse Kharroubi & Ulf Lewrick, 2020. "Bankruptcies, unemployment and reallocation from Covid-19," BIS Bulletins 31, Bank for International Settlements.
    5. repec:zbw:bofrdp:2020_018 is not listed on IDEAS
    6. Benoit Mojon & Daniel Rees & Christian Schmieder, 2021. "How much stress could Covid put on corporate credit? Evidence using sectoral data," BIS Quarterly Review, Bank for International Settlements, March.
    7. Bacchiocchi, Andrea & Bischi, Gian Italo & Giombini, Germana, 2022. "Non-performing loans, expectations and banking stability: A dynamic model," Chaos, Solitons & Fractals, Elsevier, vol. 157(C).
    8. Mikael Juselius & Nikola Tarashev, 2020. "Forecasting expected and unexpected losses," BIS Working Papers 913, Bank for International Settlements.
    9. Ryan Niladri Banerjee & Enisse Kharroubi, 2020. "The financial vulnerabilities driving firms to the exit," BIS Quarterly Review, Bank for International Settlements, December.

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