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Stress testing and corporate finance

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

The article contributes to the literature on financial fragility, studying how macro-economic shocks affect supply and demand in the corporate debt market. We take into account the effect of the competitive environment, as well as the risk level, measured by companies' default rate. The model is estimated using data from the Harmonised BACH database of corporate accounts for large euro area countries on the 1993-2005 period, in order to carry out an illustrative stress testing exercise. We measure the impact of large macroeconomic shocks (a severe recession and a sharp increase in oil prices) on the equilibrium in the debt market.

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

Volume (Year): 4 (2008)
Issue (Month): 3 (September)
Pages: 258-274

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Handle: RePEc:eee:finsta:v:4:y:2008:i:3:p:258-274
Contact details of provider: Web page: http://www.elsevier.com/locate/jfstabil

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