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Firm default and aggregate fluctuations

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Author Info
Tor Jacobson
Rikard Kindell
Jesper Linde
Kasper Roszbach

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Abstract

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 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.

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Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 08-21.

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Date of creation: 2008
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Handle: RePEc:fip:fedpwp:08-21

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Keywords: Business failures;

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