Working Paper: CEPR ID: DP7083
Authors: Tor Jacobson; Rikard Kindell; Jesper Lind; Kasper F. Roszbach
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 multiperiod 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.
Keywords: business cycles; default; default-risk model; logit model; macroeconomic variables; microdata
JEL Codes: C35; C41; C52; E44; G21; G33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| macroeconomic conditions (E66) | firm defaults (G32) |
| firm-specific factors (G32) | default risk ranking (G33) |
| macroeconomic factors (E66) | absolute risk level (D81) |
| ignoring firm-specific information (G14) | loss of out-of-sample accuracy (C52) |
| aggregate fluctuations (E10) | firm defaults (G32) |
| macroeconomic variables (E19) | default behavior understanding (D01) |
| effects of aggregate fluctuations vary across industries (F44) | causal impacts from macro factors on firm defaults (G33) |