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Explaining Corporate Credit Default Rates with Sector Level Detail

Author

Listed:
  • Lubomira Gertler

    (University of Economics, Bratislava, Slovakia)

  • Kristina Janovicova-Bognarova

    (University of Economics, Bratislava, Slovakia)

  • Lukas Majer

    (University of Economics, Bratislava, Slovakia)

Abstract

We model corporate loan default rates in four main economic sectors using quasi-panel methods and find that economic sectors respond differently to changing economic and financial conditions in terms of time, intensity or dynamics. We propose using techniques that allow both long run and short run components, while maintaining a flexible unified framework to capture heterogeneity across economic sectors (error correction panels). We also undertake a stress testing exercise, which justifies more granular level modelling due to heterogeneity across sectors. We conclude that such unified framework provides more robust results. From practical point of view, evidence from Slovak corporate sector confirms that construction sector is far more vulnerable to shocks than manufacturing, business services or trade.

Suggested Citation

  • Lubomira Gertler & Kristina Janovicova-Bognarova & Lukas Majer, 2020. "Explaining Corporate Credit Default Rates with Sector Level Detail," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 70(2), pages 96-120, August.
    • Handle: RePEc:fau:fauart:v:70:y:2020:i:2:p:96-120
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    File URL: https://journal.fsv.cuni.cz/mag/article/show/id/1456
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    banking; corporate default risk; credit risk; stress tests;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • 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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