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Macroeconomic Fluctuations and Corporate Financial Fragility

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

Using a large sample of accounting data for non-financial companies in France, this paper studies the interactions between macroeconomic shocks and companies' financial fragility. We consider links in both directions, namely whether firms' bankruptcies are affected by macroeconomic variables, and whether bankruptcies determine the business cycle. We estimate forecasting equations for firms' bankruptcy using Shumway's (2001) approach and study the joint dynamics of bankruptcies and macroeconomic variables within an exogenous VAR type model estimated at the sector level. We find evidence of reciprocal links between the bankruptcy rate and the output gap and highlight significant "second round effects" of shocks to the output gap on bankruptcies. We show how taking into account the dynamic transmission of macroeconomic shocks matters in stress testing exercises.

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Paper provided by Banque de France in its series Working papers with number 226.

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Length: 46 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:bfr:banfra:226
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Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS

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  26. Chae Woo Nam & Tong Suk Kim & Nam Jung Park & Hoe Kyung Lee, 2008. "Bankruptcy prediction using a discrete-time duration model incorporating temporal and macroeconomic dependencies," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 27(6), pages 493-506.
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